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Bali's Price War Escalates

PHRI Vows to Review Pricing Policies of Starred Hotels in Bali


Bali News: Bali's Price War Escalates
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(2/16/2014)

The Bali chapter of the Indonesian Hotel and Restaurant Association (PHRI-Bali) has said it will review the way in which star ratings are given in an attempt to stem an unhealthy price war now underway amongst hotels on the Island.

Quoted by The Bali Post, Ferry Markus the secretary-general of PHRI-Bali,said: "We will be looking at the rates charged by starred hotels. Let's not let starred hotels sell their rooms below standard using strategies that kill other businesses."

Markus explained that many hotels are now under-priced, pushed by heavy competition from the uncontrolled increase in room supply. Proof of this, he claims, is found in the fact that starred hotels in Bali recorded an average occupancy of 56% in 2013, down from over 60% in 2012. This decline in occupancy happened at the same time when the total number of foreign visitors to Bali increased 13.37%. This anomaly of decreasing occupancies when tourist numbers are growing can only be explained, said the PHRI official, due to the sudden growth in total rooms.

"If new hotels advertise special promotional rates that's understandable. But if these special promotional rates are still being offered two years after opening, an unhealthy competitive situation will be created. What's more, once tariffs are cut they are difficult to raise again. Eventually this affects returns that are not matching the size of the investment," said Markus.

Markus continued saying occupancies in the early days of 2014 are averaging below 50% and inadequate to cover the operating costs of hotels. Higher occupancy rates at low room rates below standard will not help the bottom line.

The deputy chairman of PHRI-Bali Nyoman Suwidjana admits that the new supply of rooms far outstrips any increase in demand. This situation has resulted in an imbalance in how hotels are being managed and operated in Bali.

"The oversupply of rooms is affecting hotel room rates. This can threaten Bali's tourism industry. Room rates that are already too low will be put under further pressure, said Suwidjana.

Cannibalism

He went on to explain that the current over-supply situation can lead to "cannibalism" where new hotels seize the long-held markets of small hotels owned by the Balinese. "Hotels owned by locals have long contributed to Bali tourism. Now new hotels owned by outsiders are threatening local businesses," he added.

PHRI breaks down the current situation saying that while arrivals have increased by more than 10%, new hotels room have increased by more than 15% during the same period. Given the current number of hotel rooms now on sales in Bali, PHRI says occupancies will only recover to 70% when foreign tourist arrivals exceed 4 million.


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