Indonesia�s number one destination

Bali is one of Indonesia�s most precious cultural and tourism assets. In 2004, two years after the first terrorist attacks, the island set a new record in visitor arrivals which increased to 1.5m. According to the Bali Tourism Authority (BTA), this was an increase of 3.2% over the island�s previous best performance in 2000. Over 50% of all visitor arrivals to Bali originate from Asia Pacific. Japan remains the largest inbound market from the region, followed closely by Australia, Taiwan and South Korea.

In an economy that is dependent on tourism, accounting directly for over two-thirds of economic activity, the impact of these recent attacks will no doubt have a detrimental effect on the livelihoods of many Balinese people. From a total population of 3.3m, 1.3m Balinese people are employed in the tourism sector. What impact the October 2005 bombings will have on this idyllic island still remains unclear, however reviewing how the island dealt with the 2002 attacks and how long it took to recover, may shed some light on how Bali can start to rebuild confidence among tourists once again.

Eleven months of double-digit declines

The first attack on 12 October 2002 ripped through a busy nightclub in the resort area of Kuta, killing 202 people, mainly tourists. Kuta is a budget accommodation area and the centre of mainstream tourism to Bali. The militant group of Jemaah Islamiyah, linked to the al-Qaeda network was said to be responsible for the attacks, which saw tourists evacuate the island en masse, devastating the economy.

After the bombings in Kuta, Bali�s international airport saw arrivals drop from an average of 5,000 visitors a day to less than 1,000. Ten days after the bombings, the number of arrivals had dropped by 82% compared to the day of the attacks, according to the Bali Hotels Association. The graph below shows that the month after the attacks Bali saw the total number of visitor arrivals fall to 31,000 � a decline of almost 60% compared to the previous year.
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Visitor arrivals to Bali
January 2000 � August 2005

Source: Bali Tourism Authority

Economy struggles

The impact on the economy was also severe, with significant falls in employment and income. A report from the United Nations Development Programme and the World Bank in 2003 showed that household incomes in Bali fell by 25% after the first bombings. The report concluded that the island was too reliant on tourism, making it vulnerable to such attacks and recommended that the government promoted reforms to build a more diverse and sustainable economy.

However, these reforms became a low priority, as tourists began flocking back to the island. Although total arrivals to Bali fell by 22% in 2003, visitor arrivals reached record highs of 1.5m in 2004. The strong growth continued into 2005 as Bali benefited from being 3,000km away from the areas worst hit by the Indian Ocean tsunami in December 2004. However, visitor arrivals do not tell the whole story. Although tourist numbers have been breaking records, hotel performance paints a slightly different picture.

Two years and counting

By reviewing hotel performance on a rolling-twelve basis (which mitigates the impact of seasonality) we are able to evaluate how long it took Bali to recover from the 2002 attacks. Occupancy levels in Bali showed signs of recovery by October 2003. However it took a further 12 months for occupancy to reach the same levels it had recorded prior to the 2002 attacks. The recovery of average room rates was considerably slower. Even, before the second wave of attacks, average room rates just US$1 below those achieved in October 2002.
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Rolling-12 analysis of Bali�s hotel performance
January 2000 � September 2005

Source: HotelBenchmark� Survey by Deloitte

On 1 October 2005, Bali once again suffered at the hands of terrorists. A series of bombs ripped through restaurants in the resort areas of Jimbaran and Kuta, killing 25 people and leaving many wounded. Although no one has claimed responsibility for the bombings, they bear the hallmarks of Jemaah Islamiyah. The group is also thought to have been behind the 2003 bombing of the JW Marriott Hotel and the 2004 bombing of the Australian Embassy; both in Jakarta.

According to the Bali Hotels Association, 10 days after the attacks, the number of arrivals to the airport fell 63%. Although significant, the decline was not as great as those experienced after the 2002 bombings. However, since the previous attacks in 2002, the world has become a very different place. Madrid, Turkey, Thailand, the Philippines and London have also been targets of terrorism and with this has come the realisation that the threat of terror is truly worldwide.

Hotel performance on the rocks

Unsurprisingly, hotel performance has suffered. Latest preliminary results from the Asia Pacific edition of the HotelBenchmark� Survey show significant declines in hotel performance for October 2005. Although average room rates have increased slightly to US$78, occupancy has plummeted 32.4% to 43.6%. However, the true impact of the bombings may not become apparent until the end of the year when the holiday season peaks in Bali.

Australia�s concern

Since the attacks, many travellers have cancelled their trips, particularly those from Bali�s two main inbound markets, Japan and Australia. The Australian government is especially concerned after the latest series of attacks. Not only is Bali a major tourism destination for Australians, accounting for 18% of all arrivals to the island in 2004, but it is also an important stopover for flights between Europe and Australia.

The impact of the bombings on neighbouring countries such as Australia is already evident. From 10 November 2005, Australian Airlines suspended some of its services to Bali due to a decrease in demand following the attacks. The airline has suspended its two-weekly services from both Perth and Melbourne until the end of January 2006. Despite this, the airline will continue its three services each week from Sydney.

Australia is not the only country expressing its concerns. Delegates attending a United Nations World Tourism Organisation conference in Argentina shortly after the attacks urged the world not to abandon Bali. However, the response has been mixed. While support has poured in from many countries, the governments of Australia, New Zealand and South Korea have issued travel warnings against Bali.

Wake up call

In the light of these recent attacks, it is necessary for the government to sit up and take action. Now that the island has been a target for two terrorist attacks within a three-year period, they will come under increasing pressure both domestically and internationally to tighten security across Indonesia.

It is therefore essential that the government reacts quickly to the bombings to restore confidence among tourists. The government has recently enforced a new system to monitor newcomers to the island. Domestic arrivals must register within three days or receive a penalty and anyone who rents out a room has to report the information, which will be fed into a central database. Furthermore, all hotels, restaurants, shops and public places must now install closed circuit television.

The Bali Tourism Board has also planned several road shows over the next couple of months to some of the island�s major inbound source markets. As the most sensitive market, Japan is the first on the agenda, followed by Australia and China. While it takes time for confidence among tourists to be restored, inevitably hotel performance will suffer.

Paradise lost?

The recent wave of bomb blasts on the island of Bali, demonstrate that the terrorist threat remains. The biggest hurdle Bali faces in the coming months is to ensure that it is perceived as a low risk destination. However, as Bali may now be seen as a regular target for terrorism, this may be an uphill struggle. Although visitor arrivals may not initially be declining as quickly as in the aftermath of the 2002 bombings, there is a danger that the number of tourists may fall significantly in the long term. Even though tourists are becoming more resilient to terrorist attacks, there is also strong competition from neighbouring islands in Asia Pacific which may be deemed safer. It is also not advisable for hotels to discount as heavily as they did previously, as it may take the hotel industry longer to recover.

Notes: All analysis in US$

The HotelBenchmark� Survey contains the largest independent source of hotel performance data outside of North America and tracks the performance of over 6,500 hotels and 1.2 million rooms every month.

 Jessica Jahns
HotelBenchmark
+44 (0) 20 7007 0967
Email: [email protected]