Hotel industry in Indonesia is facing a turbulent period. The latest data reveals a sharp drop in both occupancy rates and room prices, reflecting growing market uncertainty. A combination of factors, particularly the government’s budget cuts, has led to declining demand for hotel services. This situation has hit properties across the country, with some regions experiencing an even more drastic impact.
A joint survey by the Indonesian Hotel and Restaurant Association (PHRI) and Horwath HTL shows hotel occupancy rates have fallen by as much as 35% compared to the same period last year, averaging just 20% nationwide. The most affected areas include Jakarta, Yogyakarta, and Bandung—destinations that have traditionally relied on government visits to fill their rooms.
PHRI highlights that the main driver behind this downturn is the government’s reduced spending on official travel. Hotels that once relied on hosting government meetings and conferences are now struggling to maintain business.
“In January 2025, more than 30% of respondents reported a revenue loss exceeding 40% compared to the previous year,” the survey stated, as quoted by CNBC Indonesia on Tuesday (March 25, 2025).
A Chain Reaction of Hotel Industry in Indonesia
The drop in occupancy rates has also affected pricing. Since hotel industry in Indonesia is primarily driven by domestic travelers, demand usually keeps occupancy levels relatively stable. However, as demand weakens, room rates inevitably follow. Many budget hotels have started cutting prices to attract guests, but this strategy carries long-term risks.
Once hotels start lowering rates, the entire market feels the impact. This leads to an increasingly price-sensitive environment, forcing businesses into aggressive competition. As a result, hotel markets risk falling into a “red ocean” strategy, where price wars disrupt long-term growth and sustainability.
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For hotels that cater primarily to local travelers, government activities and the Meetings, Incentives, Conferences, and Exhibitions (MICE) sector play a crucial role in shaping market trends. Many of these segments are highly price-sensitive. Only a handful of destinations in Indonesia have a diverse mix of domestic and international guests, making the industry even more vulnerable to local economic shifts.
According to the survey, “More than 50% of respondents believe this situation could persist for at least another six months, if not longer. Maintaining positive momentum is crucial for an emerging market like Indonesia. Once lost, it will be extremely difficult to regain in the current critical climate.”
As the industry grapples with these challenges, hoteliers will need to rethink their strategies. Simply lowering prices may provide temporary relief, but it could weaken long-term market stability. Finding ways to attract diverse market segments and reducing reliance on government-driven demand may be key to overcoming this crisis.
