The Indonesian Tourism Industry Tourism Essay

The capital city of Indonesia, Jakarta with a total populations of 9.6 million (BPS, 2012) with five areas namely West, East, North, South and Central, has positive economic growth since period 2000 to 2011, which mostly was sustained by the three main sectors such as (1) financial, real estate and business services sector, (2) trade hotel and restaurant sector and (3) manufacturing sector. (BPS, 2012)

The increasing of economic growth gives impacts to the tourism industry in Indonesia. In January 2011, the Culture and Tourism Minister of Republic Indonesia announced the replacement of “Visit Indonesia Year” branding with “Wonderful Indonesia” as part of tourism campaign that expected to attract 7.7 million foreign tourists and generate $8.3 billion of revenue. Whereas 50% of this revenue will be generated from meetings, convention and exhibitions that will take place in various place in Indonesia. (The Jakarta Post, 31st December 2010).

Jakarta, where the central government, trade, services and industry are located at, makes Jakarta a destination for business travellers or as a government central meeting. In addition, with the completing facilities at JIExpo Kemayoran in North Jakarta, Jakarta Convention Center in Central Jakarta, Balai Kartini in South Jakarta, Semanggi Expo in South Jakarta, Jakarta will become one of the tourism destination for MICE (Meeting, Incentive, Convention, and Exhibition) business. (Sarya, 2011, p.16)

Table 1.:The statistic of number of international tourist arrival through gate

Airport

Year

2008

2009

2010

2011

Soekarno Hatta,

1,464,717

1,390,440

1,823,636

1,933,022

Ngurah Rai,

2,081,786

2,384,819

2,546,023

2,788,706

Polonia,

130,211

148,193

162,410

192,650

Sam Ratulangi

21,795

29,715

20,220

20,074

Batam

1,061,390

951,384

1,007,446

1,161,581

Juanda, Surabaya

156,726

158,076

168,888

185,815

Adi Sumarmo

19,022

16,489

22,350

23,830

Minangkabau,

40,911

51,002

27,482

30,585

Others

1,257,939

1,193,612

1,224,489

1,311,468

Amount

6,234,497

6,323,730

7,002,944

7,647,731

Source: Biro Pusat Statistik, 2012

Table 1.1 shows that the international tourists who arrived through Jakarta’s International Airport namely Soekarno Hatta, have increased year to year which in 2011, it reached about 1.9 million. The total international tourists who came to Indonesia in 2011 have almost reached the target of the Culture and Tourism Minister to attract 7.7 million foreign tourists.

Hotel Industry

For some big countries like Jakarta, which has many business activities, hotel becomes one of the most productive income-producing properties (Internal data Colliers International Indonesia, 2012).

There are four benefits from hotel industry for a country (Medlik & Ingram, 2000, p.4), which are,

In some areas, hotel as an attraction of visitor who bring spending power and who tend to spend more money than they do when they are at home. This visitor spending power often gives big contribution to the economy revenue of a country. In Jakarta, hotel, trade and restaurant sector is one of top three sectors which give a biggest contribution in GDP for mostly years. From period 2009-2011, hotel, trade and restaurant sector has contributed 20% for DKI Jakarta’s GDP (Gross Domestic Product). (BPS, 2009 – 2011)

In areas which receiving foreign visitors, hotels play big roles as foreigner currency earners which can give big contribution to their country’s balance of payments. For countries which have small possibilities of export may take hotels as their foreigner currency earners.

Hotels can provide many job opportunities that this role is important for areas which have small number of sources of employment, where they contribute to regional development.

Hotel can act as a medium to promo the products of other industries. Mostly hotel are supplied with food, drink and other consumables which purchased from local farmers, fishermen and other suppliers. Using local products in their services makes this hotel not only can contribute directly to their economy revenue to nation as a foreigner currency earners but also indirectly as an outlet to promote other local industries.

Hotels may become social activity centres for local people and often their restaurants and other facilities can attract local custom.

The positive macroeconomic growth encourages the positive growth of hotel supply in Jakarta, as a respond from hotel groups for the positive growth of room demand. Some hotel groups expand their hotel chain by increasing their number of hotel, such as Tauzia (local chain) which its hotel management will develop 23 hotels until 2012, consist of 15 units Harris Hotel and 8 units of Pop Harris. Next, there is the Accor group (international chain based on France and the largest operator of hotels in Asia Pacific) plan to expand their network across Indonesia from 40 hotels in 2011 to 100 hotels by 2015.

PT Surya Semesta Internusa Tbk (SSIA), who own and manages the 5-star Gran Melia Hotel Jakarta and Melia Hotel Bali, plans to expand its revenue in the hospitality market by developing a budget hotel network in 2012.

The increasing number of hotel for a budget hotel to a five stars hotel for period 2000 – 2011 are shown on the Figure 1.2, (from the period 2012 – 2015 are projection number),

Source: Adopted from data internal Colliers International Indonesia, 2012

Figure1.: The hotel supply in Jakarta by number of hotel from period 2000-2015

Source: Adopted from data internal Colliers International Indonesia, 2012

Figure1.: The hotel supply in Jakarta by number of room from period 2000-2015

Based on the Figure 1.2, the supply of hotel since 2000-2011 are dominated by 5-star hotel and 4-star hotel, whereas until 2011 there were already 37 five-star hotel and 35 four-star hotel in Jakarta.

These hotel groups which play in Jakarta hotel market consist of international and local brands. Some of international brands in Indonesia which the writer would like to mention are Holiday Inn, Sheraton, Four Seasons, Kempinksi, InterContinental, Hilton International, Ritz-Carlton and Mandarin Oriental. While the local brands also aggressively work to build their own chain, from Santika, Mulia and Sultan to the Sahid Group and many others.

The Emerging of Budget Hotel in Jakarta

The concept of Budget Hotel in Jakarta began to emerge in 2006, initiated by the Accor Group, France with the Hotel Formule1, which plans to build four other branch of this hotel in Bali, Semarang, Yogyakarta and Jakarta. Then followed by Santika Group with their Amaris Hotel that until 2012 having 22 Amaris hotel and planning to expand the chain by adding another 13 Amaris Hotel.

Basically the key players in budget hotel market are hotel groups who already have established their star hotel chains, and because they can see the potential market and demand of budget hotel, they add one line in their chain for budget hotel. Some of the hotel groups are shown in Table 1.: Hotel groups and their brand on star and budget hotel.

Table 1.: Hotel groups and their brand on star and budget hotel

Hotel Group

Star Hotel Brand

Budget Hotel Brand

Aston International

Aston Hotel (3 Star)

Fave Hotel

Accor Group

Grand Mercure (4 star)

Novotel (4 star)

Pullman Hotel (5 star)

Ibis Budget Hotel (previously Formule 1)

Grahawita Santika

Santika Premiere (4 Star)

Santika Hotel (3 Star)

Amaris Hotel

Tauzia Hotel Management

Harris Hotel (4 Star)

Pop Hotel

PT Intiland Development

Grand Whiz (3 Star)

Whiz Hotel

Source: Adopted from data internal Colliers International, 2012

Budget hotels are known for its low fare hotel (Barrows & Powers, 2009, pp.273), where guests can experience staying at good quality hotel, with a low price. The guests pay only for what they use. This will result in not only cost efficiency for the costumer but also for the investor.

Based on Colliers International Indonesia data 2012, in year 2011 there are only 6 budget hotels in Jakarta, which are,

Formule 1, Menteng by Accor

Amaris Hotel, Panglima Polim by Santika

Formule 1, Cikini by Accor

Amaris Mangga Dua Square by Santika

Amaris Soekarno Hatta, Cengkareng by Santika

Amaris Senen by Santika

In the Figure 1.3 shows the total number of budget hotel in Jakarta since emerged in 2006 to 2012.

Source: Adopted from data internal Colliers International Indonesia, 2012

Figure1.: The number of budget hotel in Jakarta from period 2006-2012

The Segment of Budget Hotel

The main segment of budget hotel in Jakarta is business traveller. The high demand of business activities in Jakarta, which require low price accommodation with limited service, has encouraged budget hotel as a main preference for company in choosing their business accommodation. In addition, there is a shift work system among corporation when they will do expansion into a new area. In the era of the 1990s, to monitor or ensure the potential for business in area which newly initiated, the company usually sends a direct top management (Hari et al., June 2011, p.44). Since 2000’s, with the improving economy and quality of human resources, the corporation began to delegate the task at middle management level (Hari et al., June 2011, p.44).

In addition, by delegating tasks to the level of management, the costs will be cheaper than sending the top management. Those changes of pattern, then affect the travel business in Indonesia, from the emergence of low cost carrier (LCC) to the mushrooming budget hotel (limited service hotels) which only provide the basic needs of the guests: the comfortable rooms for rest. Basically the potential of business traveler market in Jakarta is quite large, because of few reasons, which are:

The improvement in all sectors and positive economic growth has big impact in the increasing of business activity in Jakarta. In their business activity, the businesses often do business trip to out of town, even overseas. And as a central government, trade, services and industry, Jakarta becomes one of the most destinations for business travellers in Indonesia.

Based on data from “Asia Pacific Business Traveller Research 2011” by Accor Group, the cost which spent for hotel accommodation for Indonesian business traveller is $92/night (2011, p.11), while the average long stay is 2.08 day. (BPS, 2011)

As the total business traveller in Indonesia in 2011 is about 90% of the total domestic tourist in Indonesia (Siahaan, 2012), therefore business travellers will be around 6.84 million in a year. Thus from this total of business travellers, there is about $1.3trillion of the total cost of the trip that flows into the hotel industry in 2011.

Global financial crisis in 2008 had also triggered the corporation to cut their business travel budget. There are some strategies that they have done during 3 years after the crisis (2009-2011). Based on “Ascend Corporate Travel Survey 2012”, from 340 respondent of business travellers who based 43% Europe, 30% North America and 17% Asia pacific, there is an increasing number of company which planning to change their choice of hotels to save money in 2011. Whereas this condition was encouraged budget hotel as a preference accommodation for company for business trip

The Industry of Budget Hotel in Jakarta

What becomes interesting from budget hotel market in Jakarta is how the supply and demand of budget hotel is significantly increasing in the short period of time. Many hotel groups or airline groups expand their business to invest in budget hotel, by seeing the potential demand of this hotel. For instance, AirAsia Group, an airline company based on Malaysia, who became a pioneer of providing a budget airline (Low Cost Carrier, LLC), has also interested to create budget hotel with brand Tune Hotel. After first established in Malaysia in 2007, Tune Hotel has spread in 6 countries, such as Malaysia, Indonesia, England, Thailand, Filipina and Australia. In 2009, they launched two Tune Hotel in Bali which is in Kuta and Seminyak and in 2013, they are planning to expand 13 Tune Hotels in Indonesia which will be in Jakarta, Bekasi, Surabaya, Pekanbaru, Makassar, Sola, Palembang, Tangerang and Bali (Kompas, 5th September 2012, p.19)

In the Figure1.: The growth in terms of number of rooms from period 2000-2012 below shows that budget hotel’s growth compared with 3, 4 and 5 star hotels in terms of number of rooms is rising significant since emerged in 2006.

Source: Adopted from data internal Colliers International Indonesia, 2012

Figure1.: The growth in terms of number of rooms from period 2000-2012

The significant supply of budget hotel is a respond for significant demand from the market. It can be seen from the occupancy rate of budget hotel which is quite good better than 3 – 5 star hotels. The Figure1.: The occupancy rate from 5-star hotel to budget hotel shows that only two years after budget hotel has emerged to the market, its occupancy rate is highly better than 3 – 5 star hotels, even 5-star hotel has the lowest occupancy rate from 2000-2011.

Source: Adopted from data internal Colliers International Indonesia, 2012

Figure1.: The occupancy rate from 5-star hotel to budget hotel

The higher demand of budget hotel than 3, 4, 5 star hotels gives an idea that budget hotel probably has satisfied their customer and could create their loyalty customers who wants to do repeat purchases of their services. However, before reaching high customer satisfaction level and having loyalty customers, there are values that budget hotel should give to their customer. How customer value creation that budget hotel has done to their customer and how this value creation impacts their customer satisfaction and loyalty that ultimately will increase their demand level and how this customer value creation impacts to the hotel profitability that impact the supply level will be a purpose for this research.

Problem Identification

Due to the demand of budget hotel is higher than 3, 4, 5 star hotels, thus there is a sign that probably budget hotel has satisfied their customer that ultimately could create customer loyalty who wants to do repeat purchases of their services hotel. However, in order to satisfy their customer and create customer loyalty, they should give values to their customer.

Therefore, the issue in this thesis is to analyse “The Impact of Customer Value Creation on Budget Hotel towards Customer Satisfaction, Customer Loyalty and Hotel Profitability”. There are four areas of research problem,

What value creation that budget hotel has done towards its customers?

What is the customer satisfaction level of budget hotel as an impact of customer value creation?

What are the dominating values in influencing customer satisfaction which will lead to create customer loyalty?

How is the profitability level of budget hotel compared to 4 and 5 star hotel as an impact from customer satisfaction and customer loyalty?

Research Objective

The main purposes of this research paper are:

To identify and explain the customer’s value of budget hotel

To identify and explain of customer satisfaction of budget hotel as impacts of the customer value creation

To identify and explain the dominating value in influencing customer satisfaction level of budget hotel, which will lead to create customer loyalty

To identify and explain the correlation between customer satisfaction and customer loyalty of budget hotel

To analyze the profitability level of budget hotel compared with 4 and 5 star hotel as an impact from customer satisfaction level and customer loyalty

Significant Research

The study is significant because it provides information which will be helpful for the readers:

The study is significant in understanding the customer’ behavior and needs better.

The study will address the issue of customer value creation to improve the customer satisfaction to create customer loyalty.

The study may be useful for many interested parties, especially:

Budget hotel groups. They may use this research to support enhancement of customer satisfaction and relationship

Students and internal parties of Swiss German University. This research can be used as a reference for lecturers and other students to conduct further research.

The researcher. The result of this research can be used to enrich my knowledge.

Academics. The result of this research can be used to do further research in the same industry.

Scope and Limitation of Thesis

In order that the study on this subject more focus, and to get the benefit from the study, therefore the study limited to:

The value creation by budget hotel in Jakarta towards its customer

The impact of customer value creation on customer satisfaction and loyalty

The impact of customer satisfaction and loyalty on profitability level of budget hotel compared with hotel industry.