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Tourism is an important and growing part of Indonesia’s economy, and this huge expansion just proves that companies now consider it a safe and valuable investment.
Mantra Group, the Australian hotel operator controlled by CVC Asia Pacific Ltd., plans to open 20 hotels in Indonesia in the next three years and manage about the same number of properties in Thailand in six years.
The closely-held company, which opened its first resort under its four-star Mantra brand in March in Bali, is in talks to add six more hotels in the resort province, Chief Executive Officer Bob East said in an interview in Sydney. The Gold Coast, Queensland-based company, which is also in initial talks to run a hotel in Jakarta, will either sign management agreements or take minority stakes in properties in the country, he said.
“Indonesia’s got about 15 times more hotels being built than Australia,” East said on Aug. 7. “It’s got an emerging consumer class and a good growth story domestically and we have enough scope to grow.”
Overseas tourist arrivals in Indonesia jumped 14 percent to 789,594 in June from a year earlier, according to data from the government’s statistics bureau. As the nation’s economy expands, with gross domestic product increasing 5.81 percent in the three months ended June 30, the number of people entering the middle and affluent classes is expected to double by 2020, according to a March report by Boston Consulting Group Inc.
Following the opening of the Mantra resort in Nusa Dua in southeastern Bali, the company plans to introduce more hotels under the same brand, as well as its luxury Peppers and the three-star BreakFree brands, East said.
Mantra is adding more properties as a higher number of Australians travel to Indonesia as concerns following the 2002 Bali bombings ease. The attacks killed 202 people, 88 of them Australians.
The number of Australians visiting Indonesia surged threefold to 933,376 in 2011 from 287,103 in 2007, according to the latest available data from the Southeast Asian country’s Ministry of Tourism and Creative Economy. They make up the biggest group after arrivals from Indonesia’s neighbors Singapore and Malaysia.
The growth in tourists comes even as the Australian government warns its citizens to “exercise a high degree of caution in Indonesia, including Bali, at this time due to the high threat of terrorist attack.”
Indonesia’s second-quarter economic expansion fell short of economists’ expectations, after higher fuel costs spurred the fastest inflation in more than four years. Finance Minister Chatib Basri said this month that it would be difficult to meet a 2013 growth target of 6.3 percent, and the government needs to speed up spending to keep expansion above 6 percent.
Mantra is counting on rising room rates in Indonesia, which in May jumped 14 percent in Jakarta to $168 from a year earlier. Revenue per available room, an industry benchmark, surged 17 percent, according to research by broker Jones Lang LaSalle Inc.’s hotels unit.
The number of visitors to Bali climbed 7.8 percent in the first three months of 2013, and supply in the Bali hotel market is expected to increase “significantly” in the next five years, according to research by Jones Lang LaSalle and hotel data provider STR Global.
Indonesia had “extraordinary economic growth over the past four to five years, and the hotel industry has predominantly been driven by the local market, except for Bali,” said Scott Hetherington, chief executive officer for Jones Lang LaSalle’s Asia Hotels and Hospitality Group. “Bali has seen very strong domestic and international demand, and there’s been significant development in the three- to five- star sector.”
To complement the expansion in Indonesia, Mantra has also set up a company in Thailand to prepare for its next new market, East said, where it expects to add more properties as early as next year.
The number of overseas visitors to Bangkok jumped 25 percent in the first five months of 2013 from a year earlier, dominated by Chinese, Japanese and Indian tourists, according to data from Jones Lang LaSalle Hotels. The city is expected to be the top destination for international tourists in 2013, according to the MasterCard Global Destination Cities Index.
Mantra posted A$63 million ($57 million) in earnings before interest, taxes, depreciation and amortization in the year ended June 30, from A$60.6 million 12 months earlier, the company said last week in an e-mailed statement. Annual earnings have grown by over A$16 million in the past four years following acquisitions of properties, it said.
CVC acquired a 65 percent stake in Stella Group, which included Mantra Group, in February 2008 for A$409 million ($370 million) from property group MFS Ltd. MFS borrowed more than twice the value of its assets in 2006 and 2007, and sold Stella for about half its previously estimated value to remove about A$905 million of debt from its balance sheet, the property company said at the time.
CVC, which unsuccessfully sought to sell Mantra last year, is now committed to the hotel operator’s growth plans, East said. The Hong Kong-based private equity firm will still seek to exit “at some stage,” possibly through a listing, which he said is an unlikely option now.
To expand, Mantra has about A$20 million to buy equity stakes in Bali and Jakarta, East said. The company expects to extend its reach into other major cities in Indonesia after establishing its brands in Bali and Jakarta, East said.
“There are about 20 cities with over 2 million people,” East said. “In time, we’d expect that would be a fertile area to expand into.”
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