Bali shifts to mass market tourism?
After a very challenging 2015 for Bali, occupancy was up by more than 4% in 2016 bringing a shot of fresh air and hope, but at what cost?
Hotels’ enjoyment of solid occupancy across all categories (excluding luxury) was driven by increasing foreign direct arrivals, a slowing in new hotel openings and a further slashing of rates.
Bali’s domestic market in 2016 was up 12% y-o-y to around 7.1million and foreign arrivals also up 6% y-o-y to 4 million bringing the total to over 11 million for the first time. Foreign arrivals surged year end 2016 up by a significant 23% to 4.9 million according to the new Horwath HTL and C9 Hotelworks Bali Hotel and Branded Residences 2017 report.
Featuring prominently has been the Bali tourism pivot with Mainland China now holding the second position in terms of international arrivals. In 2017 the mass Chinese market is forecast to overtake the legacy Australian segment. In the later part of last year as Thailand’s government banned zero-dollar tour junkets from the Mainland, Bali benefited from a re-direct of business.
Two critical factors that are a knock-on effect from the dynamic shift are first a lower spend per visitor. A 2016 survey by the Bank of Indonesia highlights that the typical Chinese tourist spends around one quarter of that spent by a typical European or Australian tourist. With the proportion of Chinese tourists increasing the economic benefits of each new tourist is reducing.
Secondly is the shorter length of stay. The average length of stay in Bali YTD September 2016 fell to 3.11 days, down from3.20 days y-o-y. The sub-market suffering the greatest was Denpasar, dropping from 4.53 to 2.73 days YTD September 2016. This is a double-whammy for hotels, with lower yield per tourist and a shorter length of stay.
Meanwhile in the property sector last year, island resort-grade real estate faced volatility in both pricing and absorption rate, with developers softening sales prices to secure transaction volume in a time of economic recovery. The considerable condo hotel segment continues to be an active playing field while the villa segment remains sluggish.
There continues to be an overhang of uncertainty for foreign property buyers about the Indonesian Tax Amnesty program which has added an element of confusion into the real estate marketplace. Nevertheless, a positive outlook for hotel residences is expected as new developments are branching out from the midscale and upscale segments into new products which are being priced at lower entry points.
Taking a forward view of tourism to the Island of the Gods, the report concludes that with the government focus on increasing the number of visitor arrivals it arguably makes sense to aggressively campaign to Mainland China because it is only a short to medium haul catchment from Indonesia with increasing direct flights and a massive population giving it the greatest potential for rapid-fire growth.
It is essential however to foster other markets simultaneously to balance quantity and quality of foreign arrivals. The Thai experience is one to learn from, having aggressively targeted arrivals growth over the last Thailand government and tourism promotion has now shifted focus to increasing the yield per tourist