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Domestic demand fuels Indonesia’s budget boom
April 4 2013

A surge in demand for low-cost accommodation in Indonesia has kicked hotel development into overdrive.

Highlights
  • The archipelago typically adds 15,000 rooms a year but this year will cross the 50,000 mark.
  • Both local and international brands are expanding rapidly.
  • Knowledge of the local market and culture could also be an advantage for operators.
By Elly Earls
HNN correspondent
ellyearls@mail.com

REPORT FROM INDONESIA—A surge in demand for low-cost accommodation in Indonesia has sent hotel development in the country into a fever pitch, with a more than a threefold increase in room openings projected for 2013.

The archipelago—which typically adds 15,000 rooms a year but this year will cross the 50,000 mark, according to the Indonesian Hotel and Restaurant Association—is benefitting from a growing middle class and the expansion of domestic networks of national airlines. Both local and global hotel brands have been fast to respond.

Indonesia-based Tauzia Hotel Management, which operates five hotel brands including two in the economy segment—Pop! Hotels and Yello Hotels—will open 12 new properties this year.

Marc Steinmeyer
Tauzia Hotel Management

 

“Demand is not only limited to budget hotels,” said Marc Steinmeyer, president director of the company. “It extends to economy and midscale hotels too—in short, hotels with rates of $30 to $50.”

Aston International, also based in Indonesia, will add 44 new hotels to its portfolio in 2013, many of these in its 2-star favehotel and select-service Neo brands.

It’s not just local brands that are getting in on the action. The United Kingdom’s largest hotel chain Premier Inn will launch its first hotel in Indonesia during the second half of 2013, while Paris-based Accor is set to open 28 more economy properties in the country in the next three years, including eight Ibis, nine Ibis Styles and 11 Ibis Budget hotels.

According to STR Global, sister company of HotelNewsNow.com, two hotels comprising 309 rooms have opened thus far in 2013. There are an additional 266 hotels in the active pipeline, 86 of which are projected to open this year.

Quality and innovation
All four hotel groups are aiming primarily at Indonesian domestic travelers, a group that has evolved significantly over the past 10 years, Tauzia’s Steinmeyer said.

“They tend to be more demanding in terms of hygiene, aesthetics, comfort and security now, in addition to being brand conscious,” he said. “They are what we call ‘smart customers’; they could easily afford an $80 hotel but also wouldn’t mind staying in a $30 hotel. They have the privilege to choose based on their budget and needs.”

Brand innovation is essential for hotel groups looking to enter this fast-growing sector, he said.

“Our hotels should be more than just hotels,” Steinmeyer said. “It’s a spirit and a lifestyle in each market segment, and we set our hotels apart through our strong brand concepts.”

Pop! Hotels, for example, is aimed at eco-friendly travelers conscious of convenience, efficiency and environmental awareness, while Yello is targeted at those with an eye for art and design.

Norbert Vas, VP for sales and marketing at Aston International, said customers also are looking for something contemporary.

“Neo, for example, which just opened its first hotel in Cideng and has another 23 in the pipeline, has been created with this customer segment in mind,” he said. “It will be the first ultra-modern and completed non-smoking budget hotel brand in the country.”

Norbert Vas
Aston International

 

It’s also crucial not to forget the basics. “Our budget hotels focus on the basics, but do this better than anybody else,” Vas added. “Wi-Fi is faster and more reliable, beds are the same as in some 5-star hotels and cleanliness is the absolute No. 1 priority. But most importantly, we have a head office team of more than 100 people, constantly training, supervising, auditing and supporting our hotels, which pretty much guarantees that standards are kept at a very high level.”

With more 25 years experience in the industry, a global brand such as Premier Inn also promised to provide the top quality level of service required by Indonesia’s domestic travelers.

“Customers are looking for consistently good quality accommodation at affordable prices,” said Erik van Keulen, senior VP of development Asia/Pacific at Whitbread, which operates Premier Inn. “And as owner/developer of over 600 economy hotels, Premier Inn has a long track record of managing limited-service hotels. The customer knows they can trust the brand.”

Local knowledge
However, experience isn’t everything, particularly in a complex market such as Indonesia, as Vas was quick to underline.

“The international brands are very strong, and in some markets it would make perfect sense for an owner to pick a global operator. But at the end of the day, it is our regional and domestic market, which drives most revenues, and the complex structure of Indonesia’ travel trade industry, (meetings, incentives, conference and events) markets and government-driven group business is foreign to most global chains.”

Moreover, an understanding of the local culture in Indonesia can enhance a budget hotel’s service offering in sometimes surprising ways.

“For example, our ability to shift Internet bandwidth from one hotel to the other to meet demand peaks enabled us to double the bandwidth for our Bali hotels during Nyepi (Balinese New Year), a day we knew most guests were stuck in the hotel, spending more time online than usual,” Vas said.

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