Focused approach: Visitor numbers rise as the country widens its offering and targets new markets

Known throughout the world for its key tourism destination, Bali, Indonesia has been trying to broaden visitors’ itineraries in recent times by developing other tourist areas and activities. At the same time, the country is trying to build its profile as a business travel venue, a policy helped along by ongoing economic growth. The country is also seeking to leverage its appeal as a vast archipelago of choice, with some of the world’s most varied environments on offer. Highlighting everything from unspoilt beaches to giant rainforests, and stunning coral reefs to vibrant cities, a major promotional effort is under way to brand Indonesia differently in the eyes of global travellers, while also targeting emerging tourism markets in Asia and elsewhere.

ARRIVALS: The year 2011 has generally been a good one for Indonesia’s tourism sector, with arrival numbers up considerably on the year before. Indeed, by September, the Central Bureau of Statistics (BPS) was predicting that the country would likely meet its ambitious 2011 target of 7.7m arrivals. This was because the January-July period had already recorded 4.34m foreign visitors, a figure some 7.53% up on the same period of 2010. The surge was a late one though, with July up 10.54% on June, as the European holiday season kicked in. Yet even so, June had also been up 9.94% on June 2010, providing a very strong increase, month-on-month. Almost all of these arrivals came through the five main gateways for foreigners to enter Indonesia: Ngurah Rai airport (also known as Denpasar International, DPS) on Bali, Soekarno-Hatta International Airport (CGK) next to Jakarta, Husein Sastranegara International Airport (BDO) at Bandung and Tanjung Pinang (TNJ) airport on the Riau Islands. The BPS figures give an indication of the relative importance of these air travel centres. Figures for September 2011 show DPS witnessing 252,855 foreign arrivals, CGK 169,777, and BDO and TNJ receiving 6916 and 7849 passengers respectively. Thus Bali and Jakarta are by far the biggest gateways. Indeed, the figures for the whole January-September 2011 period show DPS received 2.7m arrivals, while CGK saw 1.4m, totalling around 4.1m.

Although the number of arrivals for September to DPS saw a fall, down from 279,200 in July, the wider context represents a yearly increase, since the July figure for 2011 was 10.75% higher than in July 2010. Therefore, at the time of press, officials were extremely optimistic that the 7.7m arrivals figure would be met. This was set after some 7m arrivals in 2010, a figure itself about 8.5% up on 2009. The goal of raising this by 10% had been agreed given the positive feedback the Ministry of Culture and Tourism had received from promoting the country in 2010.

SOURCE MARKETS: That this growth has been achieved at a time of global economic uncertainty, when many might reconsider foreign holidays, illustrates some of the fundamental shifts in tourism patterns worldwide – as the majority of tourists visiting were from Asia, according to the former culture and tourism minister, Jero Wacik, who was recently replaced by Mari Pangestu. Indeed, traditionally, the top 10 countries of origin for arrivals have been headed by Singapore and Malaysia, with the latest figures available (for 2009) showing 1.27m arrivals from the former and 1.18m arrivals from the latter. In third place came Australia, with 584,437 of its citizens travelling to Indonesia, followed by Japan, with 475,766. China came next, at 395,013: followed by South Korea, at 256,522; Taiwan, with 203,239; and then the first European country, the UK, with 169,271. The Philippines was ninth, with 162,463, and tenth was France, with 159,924.Certainly, some of these figures may be deceptive. Many Malaysian and Singaporean citizens travel to Indonesia not for tourism, but for work or to visit family, as is the case with many Filipinos. Nonetheless, in terms of arrival volume, citizens of ASEAN states make up a huge share. In 2009 arrivals from ASEAN totalled 2.77m, or around 44% of the total. Other Asia-Pacific nations accounted for 2.19m, or around 35%, while the total for Europe was 978,369 and for the Americas, 229,824. In comparison, just 28,374 Africans visited, with only 122,069 citizens coming to the islands from the Middle East.

SPENDING & INCOME: In growing the tourism sector, ministry officials and private entrepreneurs have had to look beyond these raw numbers, for there is another important ingredient in getting the tourism mix right: the average spending of those arrivals. Indeed, in 2009, while the highest-volume arrivals were from Singapore and Malaysia, visitors from these two countries spent on average $602.81 and $684.81 each per visit, respectively. However, visitors from Australia spent $1447.35 per person per visit, while Norwegians were the highest spending of all, at $2132.80 each time they visited. Thus the tourism sector still very much aims to boost numbers of higher-spending Western visitors.

Income is key too, as the tourism sector contributes a major slice of revenue to the country, with 2010 seeing around $7.6bn injected into the economy by foreign visitors. Yet the domestic tourism market is also important and growing. In 2009 a total of 229m visits by locals were recorded in Indonesia, rising to 234m in 2010 – injecting a further $15.5bn into the economy. While individual spending might be low, the domestic market certainly has bulk, with Indonesia one of the most populous countries in Asia and around 60% of its population under 30 years old and eager to travel.

AGENGIES & ORGANISATIONS: The main governmental body in the tourism sector is the Ministry of Culture and Tourism. This breaks down further into five directorate-generals (DGs), two of which are concerned with heritage and culture, the other three with tourism. These include the DG for development of tourism destinations, the DG for tourism marketing, and the DG of resource development for culture and tourism.

The ministry has been behind successive campaigns to promote Indonesia, with the latest being “Wonderful Indonesia”, which started in January 2011 and is set to run for two years. The campaign replaces a string of “Visit Indonesia” initiatives, which sought to promote the country in 2008, 2009 and 2010. “Wonderful Indonesia” is based on five main areas for promotion – nature, culture, people, food and value for money. These were the five characteristics used by Travel + Leisure magazine in a recent global survey that resulted in Bali winning the “Best Island in the World” award.

Indonesia scores highly in each of these categories. The archipelago contains a wide variety of natural environments, from outstanding beaches to volcanoes and jungles. A huge diversity of flora and fauna spreads across the country, which crosses the Wallace Line between Bali and Lombok, providing species from both Australasia and Asia within the same nation. In terms of culture, the variety is also impressive, from the Hindu temples of Bali to the urban scenes of Jakarta.

The population is also highly diverse, with some 17,500 islands of the archipelago providing an array of different ethnic groups and ways of life, all with a long tradition of welcoming visitors. Indonesian food is globally famous, while value for money is also visible from the moment tourists arrive to find their home currencies stretching a lot further than in rival destinations.

COMPETITIVE ADVANTAGES: Thus the five pillars of the campaign are clear areas of competitive advantage for the country. In addition, “Wonderful Indonesia” seeks to inform potential visitors about alternatives to the traditional Bali holiday. The ministry is also aiming for a policy of sustainable tourism development, with this underscored in the long-term Indonesian Tourism Development Master Plan, which was being redrafted at the time of press. The master plan, ordered under a 2009 presidential regulation, originally set out 50 different locations for development, which are known as strategic tourism destinations.

These were selected according to four basic criteria: their physical attractiveness; their cultural status; the receptiveness of the local people to tourism; and an analysis of emerging trends in the market, such as the rise of ecotourism. A large part of the work on the master plan involves setting out criteria and standards, with one feature of the decentralised political structure of the country being that the ministry is sometimes not in a position to impose plans on local authorities.

This creates challenges in achieving common standards of quality throughout the country, with the idea that the master plan will establish guidelines for these, ensuring a four-star hotel in Lombok, for example, has the same basic facilities as one in Sumatra. The central government role is also likely to be critical in funding the implementation of the master plan, as many of the regencies listed among the strategic destinations are lacking in financial and administrative capacity. At the same time, tourism forms a central part of the government’s Master Plan for the Acceleration and Expansion of Indonesian Economic Development (MP3EI) for 2011-25. This sets up a series of six corridors, each of which has a particular economic and industrial focus. One of the six is Bali-Nusa Tenggara, with the government set to give this region special focus in tourism (see analysis).

ADDRESSING CONSTRAINTS: The issue of capacity is an important one for Indonesian tourism development and is particularly evident in the transport element of the sector. From the perspective of the tourism industry, flights are key, with the volume and frequency of international connections a major determinant for growth. Boosting connectivity is thus essential, and there are signs that this is already happening. Lufthansa, for example, began daily flights from Munich to Jakarta via Singapore in October 2011, with plans also under way to introduce more flights to Bali.

Airport expansion and upgrade is vital if airports are to take larger long-haul carriers. However, developing other islands as tourism venues would require investment in new runways and facilities. Thus, there are plans for a new airport on Bali’s northern shore, with India’s GVK Power and Infrastructure to invest around $1bn in the project. GVK is also building a new airport at Jogjakarta, with both of these projects public-private partnerships (PPPs). At the same time, DPS is being expanded, with a new international terminal set to handle 20m passengers per year on a 120,000-sq-metre site. Jakarta’s CGK is also in the midst of an expansion programme, set to run until 2016. The state enterprise with responsibility for the management of Indonesia’s airports and air traffic facilities, Angkasa Pura II, is undertaking the CGK project, with 2011 seeing work start on an expanded Terminal 3. The larger Terminal 3 will have a 20m-passenger-per-year capacity, while a new Terminal 4, also with a capacity for 20m passengers, is due to start construction in 2012.

The national airline, Garuda, has also undergone refitting, with an initial public offering in January 2011 raising $530m to pay for new aircraft. The airline resumed European flights in June 2010, having satisfied European officials with its new safety record. Other networks include Air Asia Indonesia, Lion Air – which is currently the largest domestic private airline – Batavia Air, Merpati and Mandala, which was undergoing a restructuring in 2011 that included the sale of a 33% stake to Singapore’s Tiger Airways.

Another transport avenue is cruise ships, with 2010 seeing some 127,774 tourists visit Indonesia this way, with 206 separate port calls. In 2011, however, the number has dropped, with only 161 calls scheduled and 105,926 passengers. The reason for the decline is that fewer visits are being made to Bali and nearby Komodo due to lack of capacity in the cruise terminals on those islands. Building up the marine infrastructure is thus crucial for the sector’s future, and consultancy group SMEC has proposed a PPP operate-and-maintain (O&M) scheme in order to optimise existing stations and docks. O&M was chosen because if constructing has been included in the PPP scheme, then a financial return would not be achieved.

Transportation between tourism centres is also a priority, particularly in the Bali-Nusa Tenggara corridor. Currently, for many tourists with time constraints on their vacations, the time taken to visit the less developed islands can be prohibitive, underscoring the need for more inter-island air capacity. Other capacity constraints include human resources, with increasing demand for trained staff, yet many of those trained then travel abroad to work in more lucrative markets in the Gulf and elsewhere. Increasing the number of tourism and hospitality industry training centres is a goal of the government, with PPPs also a possibility here.

OUTLOOK: With steady growth in numbers and in its global profile, the sector looks likely to see significant expansion in the years ahead. There have been considerable difficulties to contend with in the past – security being an important one – yet Indonesia has made good inroads into winning back visitors.

The more focused approach of the economic corridors should also help the sector target the most promising markets and locations for growth. As Indonesia’s economy grows over the coming years, so too should other aspects of the sector, including business travel (see analysis). The prospects for tourism are therefore solid, with plenty of opportunity for investors to get in at the ground level in many lines of business travel.

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The Report: Indonesia 2012

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