Someone’s taken a giant pair of scissors to the government’s wallet, and Indonesia’s hotel business is feeling the pinch to the tune of USD 1.63 billion. Just how much does the industry stand to lose from recent government budget trimming? Let’s see how they’re planning to bounce back.Â
Impact of 2025 Budget Cuts on Hotels
Presidential Instruction No 1 of 2025, issued on January 22nd, 2025, has kicked off a new era of tightening belts across Indonesia. This policy targets the operational, office, and maintenance costs within the 2025 State and Regional Budgets, sending shockwaves through various sectors, with the hotel/accommodation industry feeling a significant tremor.
President Prabowo Subianto’s directive to slash Ministry/Institution budgets has prompted the Indonesian Hotel and Restaurant Association to project potential revenue losses of up to IDR 24.5 trillion (around USD 1.63 billion) for 3-star to 5-star hotels. This substantial figure underscores the industry’s reliance on government spending.
“We have calculated that the potential loss is approximately IDR 24.5 trillion for all, 3, 4, 5 stars,” said Hariyadi Sukamdani, Chairman of Indonesian Hotel and Restaurant Association.
This impact extends beyond hotels and accommodation businesses, raising concerns about potential layoffs and impacting related MSMEs, including fishermen and farmers. Furthermore, reports of MICE reservation cancellations, particularly in regions like Bali, paint a picture of disrupted operations and heightened anxieties.
As I Gusti Ngurah Rai Suryawijaya, Deputy Chairman of Indonesian Hotel and Restaurant Association in Bali, reported there are many cancellations of MICE reservations that have disrupted hotel operations in Bali.
A Well-Rounded Business Strategy
Despite concerns from some hoteliers about potential layoffs, industry observers are not entirely convinced. Azril Azahari, Chairperson of the Indonesian Tourism Intellectuals Association, thinks these worries are too much.
“If a business only relies on government projects, that’s not a business,” Azril said. “Government’s market share in the hotel industry is only around 30-40%. The rest comes from tourists and the private sector.”
“There is still a private market, local tourists, and foreign tourists. Why should we depend on the government?” he added. Azril’s perspective emphasizes the importance of a business strategy that doesn’t solely rely on public sector spending.
Echoing this sentiment, Taufan Rahmadi, a tourism observer and founder of the Indonesian Tourism Innovation Foundation, stresses the need for adaptability and innovation within the sector.
“Tourism sustainability also depends on how all elements in its ecosystem strengthen each other,” Taufan said. “In this era, the tourism sector is not only required to survive, but also to innovate, create, and synergize. History shows that those who survive are not the strongest, but the most adaptive.”
He argues that tourism sustainability cannot be solely contingent on government policies. Instead, it requires a robust and interconnected ecosystem where all stakeholders contribute to its growth and resilience.
New Target Market
Faced with the prospect of such significant losses, the tourism, hotel, and accommodation industry is proactively exploring adaptive strategies to mitigate the impact of the budget cuts. The challenge lies in replacing the substantial revenue previously generated by government-related activities.
One primary focus is the aggressive pursuit of new target markets. Recognizing that government patronage has historically filled occupancy gaps, especially during “low seasons,” hotels are now compelled to diversify their clientele.
A key strategy involves intensified promotion of private sector events, such as weddings and social gatherings, to compensate for the decline in government-sponsored events. This shift requires a recalibration of marketing efforts and potentially, service offerings, to cater effectively to the needs and preferences of private clients.
The Association of Indonesian Tourism Industries of Yogyakarta exemplifies this proactive approach. The organisation has identified incentive tourism, where companies reward employees or partners with travel experiences, as a promising avenue for growth.
Bobby Ardiyanto, Chairman of Association of Indonesian Tourism Industries of Yogyakarta, assessed that incentive tourism from private companies has the potential to replace the large contribution of government activities that have so far supported Yogya tourism industry”.
He further explained, “We are formulating this incentive tourism market both nationally and internationally. This is what we need to map because so far we have not worked seriously on this market,”
Bobby acknowledges that “so far government activities have contributed around 55% of the total revenue of the tourism industry, especially to fill the ‘low season’ at the beginning of the year”.
However, he is confident that incentive tourism has high purchasing power so that it is expected to be able to drive various tourism sectors amidst the tightening of the government budget. This targeted approach demonstrates a strategic shift within the industry, moving away from dependence on government funding and towards a more diversified and resilient business model.
Untapped OpportunitiesÂ
Despite the challenges posed by recent government budget cuts, Indonesia’s hotel and accommodation industry is full of untapped opportunities. The market is ready for innovative strategies and new target markets, making it an ideal time to invest in the business.
Seven Stones Indonesia is here to assist you every step of the way, from market entry preparation to business setup. Don’t miss out on the potential. Take the leap and start your journey with us today. Reach out to discuss your business needs and let’s turn your vision into reality.