A newly-released study by Phocuswright, three months before the third WIT Indonesia is set to kick off in Bali on April 30, sheds new light on a market that has captured the world’s attention as the next big land of opportunity.
Its population of 250 million and consistent annual gross domestic product (GDP) growth of 5-6% since 2004 gives it all the right ingredients to be a fast-growing travel market. The archipelago is already a prominent inbound destination, and its domestic travel market is increasingly fueled by a flourishing economy, improving infrastructure and rising disposable income among its urban and working-class population.
Phocuswright’s Indonesia Online Travel Overview: Arrived With a Bang, Brace for the Boom, a follow-up to The Indonesian Travel Market: Emerging from the Shadows (June 2012), presents a comprehensive view of the Indonesian travel marketplace with an emphasis on the air, accommodation and rail segments.
Indonesia’s travel market has plenty of upside, but it faces macroeconomic challenges that threaten to drag down growth. GDP rose at a sturdy 5.8% in 2013 (see Figure 1), but that was the country’s softest growth since the global financial crisis (4.6% in 2009). Still, Indonesia was the second fastest-growing Asian economy after China in 2013.
But the effects of a rising current account deficit, devaluation of the rupiah and inflation have reined in the once enthusiastic outlook for the market. Overcoming macroeconomic headwinds and boosting consumer confidence will be pivotal for the newly elected president, Joko Widodo.
The Indonesian travel market slowed considerably in 2013. The Indonesian rupiah (IDR) weakened 6% against the U.S. dollar in 2012 and contracted another 10% in 2013. Inflation also obstructed progress in the travel industry, driving up operating costs for suppliers. Moreover, intense competition among airlines resulted in Batavia Air ceasing operations in 2013 and Merpati Nusantara Airlines doing so in 2014, shrinking air capacity in the market. With domestic passenger traffic growth slowing to 4% in 2013, the lodging segment felt the ripple effect.
Indonesian Travel Market: Taking Off in Style
The Indonesian travel market gained 9% year over year in 2013 in local currency terms, but its growth vanished upon conversion to U.S. dollars as the rupiah weakened against the dollar for the second consecutive year. Total travel gross bookings dipped 2% year over year to US$10.5 billion in 2013 (see Figure 2), as all segments lost ground due to foreign exchange volatility.
As the air and accommodation segments return to double-digit growth, the market will make a swift recovery in 2014. Indonesian travel gross bookings will grow 37% over 2013. Indonesia will be the second fastest-growing travel market in Asia Pacific (APAC) after India (39%) through the forecast period. However, its contribution to the regional travel market will remain rather small, accounting for just 4% by 2016 compared to India’s 7% and China’s 36%.
Offline channels dominate travel sales in Indonesia, where just 10% of all travel was booked online in 2013. Wholesalers and travel agents are invaluable links in the distribution chain. Travelers bargain and negotiate prices offline, including directly with sup- pliers at airport ticket counters and hotel reception desks.
Retailers such as Alfamart and Indomaret are also an important dimension of offline distribution. With a network of about 9,000 stores each, they offer unparalleled access to consumers for airlines, rail and local attractions. These stores also allow travelers to book or fulfill payments for their existing reservations initiated online using cash or cards. Given the physical nature and high incidence of cash payments, sales from these channels are accounted within offline gross bookings of their respective segments.
Chetan Kapoor, Research Analyst, Asia Pacific, for Phocuswright (pictured right) will share more insights from the study at WIT Indonesia, Bali, on April 30. Click here for speakers already confirmed for the one-day event. The programme is still being finalized.
Registration begins Feb 2015. You can book your early bird ticket with syaz@webintravel.com
Download Phocuswright’s Indonesia Online Travel Overview: Arrived With a Bang, Brace for the Boom here.
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