Indonesia’s capital move could lead to US$99 million revenue loss for Jakarta’s hotels

Since Indonesian president Joko Widodo announced the plan to move the country’s capital from Jakarta to East Kalimantan, hospitality consulting firm Horwath HTL projects that the revenue that Jakarta hotels will lose to their counterparts in Kalimantan stands at around 1.4 trillion rupiah (US$99 million) annually.

Horwath HTL Jakarta’s business development manager Christy Megawati said: “While the global media scrambled to locate Balikpapan and sensationalise the plight of the Bornean orangutan, we got to thinking about the effect it will have on the bottomline of Jakarta hotels.

“Government-driven room night demand, for both FIT and business events, is integral to the business of Jakarta hotels, so what are hoteliers going to do (about the loss of business revenue from that sector)? How are they going to fill the burgeoning number of rooms? How big is that slice of (Indonesian hotel business) pie?”

In terms of rooms, the estimated total room night demand (RND) in Jakarta from government- and business-related events in 2018 was around 2.1 million room nights or the equivalent of 5,800 rooms per day or 18 occupied rooms per hotel per day at an average daily rate of 972,000 rupiah (US$68).

On the F&B front, the estimated total number of business events in 2018 for both in-house and external guests was nearly 13.8 million, which translates to around 115 covers per hotel (three-star and above) per day at 215,000 rupiah per cover.

“We have created two doomsday scenarios: an estimated 25 per cent or a 50 per cent loss in RND of the total RND from government- and business-related events,” Megawati explained.

Under the first scenario, a 25 per cent loss equates to a reduction of 528,000 room nights – or 10 empty rooms every day – and a total 1.2 trillion rupiah loss in annual revenue to Kalimantan.

Under the second scenario, a 50 per cent loss equates to a reduction of more than one million room nights – 20 empty rooms every day – and a total 2.3 trillion rupiah loss in annual revenue to Kalimantan.

Horwath HTL’s conservative estimate of the amount of business revenue that Jakarta hotels will lose to their counterparts in Kalimantan is around 1.4 trillion rupiah annually, based on 2018 values.

To estimate the amount of losses, Horwath HTL based its calculation on several assumptions, using 2018 as its base year.

“The year 2018 was a pretty good base year with a healthy 5.3 per cent GDP growth; an improved unemployment rate (currently 5.3 per cent); strong foreign direct investment (US$27.8 million) boosted further by a weaker IDR; and the year preceding a national election was typically a strong stable year for hotels, before the tumult of an election year,” said Megawati.

An assumption is that the Jakarta provincial government will continue to generate RND and that Jakarta will always be the country’s beating economic heart.

Another assumption is that a significant proportion of RND in Jakarta is driven by government-related business events, including those of state-owned companies.

The calculation is also based on Statistics Indonesia’s data that Jakarta has 326 hotels and 46,899 rooms, or around 144 keys per hotel.

 

Source: https://www.ttgasia.com/2019/09/25/indonesias-capital-move-could-lead-to-us99-million-revenue-loss-for-jakartas-hotels/