This is a guest contribution from Eric Levy and Fred Patet of Tourism Solutions International.
With new airlines flying to Lombok, we expect international arrivals to boost Lombok tourism and to spur the development of new resorts. Lombok hotel supply should double to more than 4,500 rooms by 2022 supported by continued strong growth in visitor arrivals.
“World-class beaches, among the very best in Asia!” That was the type of comment coming from everyone around the table… almost 25 years ago! Scattered around the table were pictures of Lombok’s Mawun and Tanjung Aan beaches as well as information on the airport that was going to open “sometime soon”. Of course we were discussing the potential of Lombok to emerge as a strong tourism destination in Indonesia. In that year (1990 ), Bali was experiencing “huge” arrivals of approximately 1.2 million (forty percent of that being international arrivals) so we did the math and with only two international flights a day that would be roughly 100,000 international arrivals per year…not a bad way to kick start an emerging destination.
At that time, how wrong we were…the airport has opened but over 20 years from the latest date we imagined at the time. That is the key to opening up Lombok and specifically its Southern beaches for the world to enjoy.
The market frenzy at the time, following the beat of former Minister of Tourism Joop Ave’s drum, resulted in the development of nearly a third of the Island’s international quality guest rooms between 1989 and 1995.
Well, as they say, you ain’t seen nothing yet. At least in Lombok, we expect to be seeing a new cycle of boom years in hotel development that exceed the last gold rush handily. Developers from Indonesia, Europe, Singapore, Malaysia, Hong Kong, Thailand including others all have been increasingly active in pursuing opportunities the past two years.
While still relatively untouched, Lombok Island has been through significant changes in the last two years that has attracted many investors’ attention. The catalysts are the new airport and the market support (growth in international arrivals is estimated to be over 140 percent from 2012 to 2013) shown for the new routes plus the strong numbers being posted by top tier resorts in Lombok.
The upper tier resorts that have opened/expanded in the last two years, notably the Sudamala and Qunci Villa resorts in Mangsit beach have been quickly absorbed by the market. The former (opened in June 2013) achieving occupancies close to the market average by 4Q 2013 and Qunci Villas remaining in the mid 80 percent range through an expansion that doubled it in size in 2012. Despite this expansion in supply, RevPar growth in 2013 at the top tier of Resorts has been extremely strong and in 2014 RevPar growth should again easily be double digit. The three Gili islands in the Northwest have had banner years additionally facilitated by increasing numbers of fast craft ferries delivering tourists from Bali.
These factors combined with:
- The availability of vacant land along kilometers of Asia’s finest beaches within a 30 minute drive of the new airport;
- Lower land prices than in other resort destinations notably Bali;
- Bali’s evolution into an urban Resort leading those that desire to find the idyllic tropical island holiday to search further afield; and
- Lombok being able to function as a jumping off point for islands to the east;
are convincing developers and tourism officials to focus upon tourism related development in Lombok today.
A Look at Supply / Demand Factors
From 2010 to 2012, the hotel room supply (three to five star hotels) has grown at a CAGR (Compound Average Growth Rate) of 28.5% to reach almost 2,400 rooms in 2012 compared to approximately 1,400 rooms in 2010 . The main increase has been in 3-star hotels which represent about 42% of this existing supply; while 4-star hotels represent 47% of the hotel supply and the balance are 5-star hotels. There are an additional 500 rooms in 1 or 2-star hotels, most of which are less than 40 rooms in size.
The most significant statistics as relates demand in 2013 included the 15.5% growth in air arrivals over 2012 illustrated by 11 months of available data from January 2012 . While the 15.5 percent figure represents strong growth, arrivals on international flights increased 143 percent for the full year over 2012. International arrivals for the full year of 2013 exceeded 41,000 as compared to 17,032 recorded in 2012. Given International flight frequency does not change this year (and we do expect changes both positive and negative), we project that this arrival figure should be approximately 70,000 in 2014.
From 2007 to 2012, visitor arrivals checking in to star-rated hotels grew at a CAGR of 15.0% for domestic travelers which represent more than 369,000 check-ins in 2012 and at a CAGR of almost 23% for international visitors which accounted for just over 116,000 check-ins in 2012. International visitors tend to stay longer with an average length of stay of almost 4 days compared to 3 days for domestic travelers in 2012. The relatively low number of international tourists is explained by the limited number of direct flights; more than 220 domestic flights per week and 11 international flights per week in 2012. Until virtually the end of 2012, Silk Air was the only international carrier flying to Lombok, which explains why Singapore was in 2012 the top feeder market (19%) for direct air arrivals to Lombok. In 2012, Europeans accounted for a third of international arrivals (Germany, U.K., and France) and Malaysia about 10%. New flights from Kuala Lumpur (started November 2012), Perth (September 2013),) and Singapore (November 2013) are causing a further shift in key markets 2014. Top tier resorts sourced approximately half their guests from Europe in 2013 but with the new flights are seeing their market segmentation shifting to more Australians and Singaporeans thus far in 2014.
West Nusa Tenggara reported a total market-wide occupancy of 50 percent in 2011. However, occupancy significantly increased over the past two years and in 2013 was in the mid fifties . In addition, TSI reviewed a top tier sample of 9 hotels (representing 655 rooms) that mainly accommodate international guests. In our top-tier sample, 7 hotels are in the Senggigi area, one in Gili Trawangan and the Novotel is in Kuta area. For the last quarter of 2013, our sample achieved 77.5 percent occupancy at an ADR of 1,115,000 rupiah (almost US$100). Over the past six months up to end March (including the traditionally soft first quarter), this sample of upper tier properties achieved an aggregate occupancy of 73 percent at an average rate of 1,000,433 rupiah.
Stephane Servin, Chairman of the Lombok Hotels Association, has recently been quoted at estimating occupancy for all LHA hotels will be in the low to mid 70’s in 2014. TSI expects that the same upper tier of properties it studied will exceed the larger total number of LHA properties’ occupancy level in the coming year. This illustrates that Lombok is a popular destination for upper upscale resorts providing an authentic experience and is positioned to support growth in this segment of the market.
Despite the recent additions to the hotel supply, international brands (and strong domestic brands) remain limited in Lombok as only Starwood (Sheraton), Accor (Novotel), Tugu and Oberoi operate in Lombok and these branded hotels account for less than 15% of the total hotel room supply. This will change and relatively quickly; Archipelago hotels reportedly has five projects in the pipeline including the upmarket Royal Kamuela, and other upmarket international hotel chains are definitely going to enter the market with high quality resort projects in the next wave of development in Lombok.
Parallels with other Emerging Destinations
While many draw a comparison between Bali and Phuket, the recent development in Lombok also reminds us of Phuket’s neighbor, Krabi. Both Krabi and Lombok have had to develop in the shadow of a major touristic destination and their developments have several similarities including airport facilities and connecting transport systems.
Krabi had its first airport replaced in 1999. The new airport was a signal and hotels were built rapidly, similar to what occurred two decades ago in Lombok in anticipation of the new airport. However, the limited number of flights caused an imbalance in hotel supply which leads to efforts to improve the airport situation. Note that Phuket’s airport has been strained in terms of capacity issues as has Bali in recent years. In April 2012, the existing terminal in Krabi was dedicated to international arrivals while the new terminal was to receive domestic flights. The airport with an increased capacity of 3 million passengers is equipped with a longer runway enabling it to directly receive tourists from Russia and China. In October 2013, the airport started 24-hour operations as arrivals reached the one-million level. Further developments plan to increase the airport capacity to 5 million passengers.
In terms of passenger arrivals, Krabi grew from 102,823 arrivals in 2002 to 653,519 for the first 11 months of 2013 , about 21% of arrivals were international for the same 11-month period, essentially from Singapore and Kuala Lumpur. This represented approximately 0.6% of international arrivals to Thailand in 2013. Lombok captured only about 0.2 percent of total International visitors to Indonesia in 2012. In 2014, TSI estimates that Lombok’s share of total direct international arrivals will exceed 0.7 percent, significant growth indeed. We expect this number to continue to grow significantly over the period we have studied which is not only healthy for Indonesian tourism as a whole but certainly bodes well for providing an economic boost to Lombok’s fortunes. As a point of reference, Bali since 1997 has captured more than 25% of international visors to Indonesia with this steadily increasing to approximately 36% in 2013. Phuket while also increasing in importance as a Thai destination over the same period captured 11.2% (2013) of total visitors to Thailand which illustrates the better balance Thailand has in terms of alternative destinations to Indonesia at present. This underscores the relevance of Indonesia’s efforts to develop other tourism destinations.
Announced since the late 80’s, Lombok’s new international airport finally commenced operation in 2011. While the runway is currently 2,750 meters-long, plans are to increase it to 4,000 meters and terminal capacity to 3 million passengers. Arrivals in Lombok increased from 579,705 passengers in 2009 to 896,348 in 2012; however, international visitors represented less than 2 percent of arrivals. Arrivals increased to nearly one million in 2013 with International arrivals doubling to approximately 4% of total arrivals. This is a significant market dynamic that is impacting the tourism market. We expect International arrivals to increase to approximately 7% of total arrivals in 2014 if current international air service remains constant. There are rumors of additional service to Australia and Hong Kong plus and as experienced in Krabi, the increase in international charters is also a high probability. The Singapore/Lombok sector appears to be at imbalance and short term adjustments are expected.
It is interesting to recall how Bali has evolved. In 1982, 152,364 foreign tourists visited Bali, 490,729 in 1990, 1.5 million in 2000 and more than 3.2 million in 2013 . In 1970, Kuta had no restaurants and only 2 hotels. A decade later, the town counted 100 hotels and 27 restaurants . The story of Kuta (Bali) hints of the upcoming development of Kuta (Lombok).
Another example is the development of Boracay and its two supporting airports Caticlan and Kalibo. Caticlan which accommodates domestic carriers has had a stagnant number of arrivals since 2008 of approximately 600,000. Kalibo which caters to international tourists is known for being the fastest growing airport in the Philippines with a CAGR of 24.7% from 2008 to 2012 and welcomed approximately 1.2 million tourists in 2012 .
These comparisons explain how the increase in international arrivals has enabled destinations like Bali, Krabi and Boracay to take the next step in their evolution and become significant international tourist destinations. The new airport in Lombok with its 551-hectares of land has the potential to support Lombok development; the terminal capacity is 3 million arrivals and the runway is planned to be enlarged to accommodate larger planes The airport’s location is expected to cause a shift from Northwest Lombok (Senggigi/Gilis) being the only dominant tourism center to enable South Lombok and its pristine beaches to provide Lombok the ability to offer multiple types of environment for tourists.
The next stage in Lombok’s evolution includes the development of attractions and tourism support infrastructure ranging from improved health care facilities, ground tour operators, wedding planners to attractions. Lombok has a golf course in the North-West of the island and there are plans to develop a second one in the south. In comparison, Krabi has two golf courses (and several in nearby Phuket), Bali has five and even the small island of Boracay has a golf course. Another important element to facilitate mass tourism is the presence of attractions such as water parks. Kuta Green Park, Waterbom Bali, Circus Waterpark Bali are examples in Bali. Krabi Town Amusement/Tree Top Adventure Park are examples in Krabi while Boracay has Cool Waves Ranch. A number of investors are reviewing these various types of tourism related business in Lombok today.
For the next 2 to 3 years, new development will be focused in Northwest Lombok as the area has existing restaurants and other support business and proximity to the Gili Islands, Rinjani and other attractions. However, by 2018 we should see new hotels opening South Lombok, the Mandalika project gaining the most attention to date.
Located in Northwest Lombok, the luxury Spirit Resort, is under construction and should open in 2015. The Royal Kamuela construction has also started and we expect the property to debut in 2015. Three recent sales of older hotels in Mangsit beach, Windy Resort, Santi Resort and Alang Alang all are understood to be redevelopment projects that will be targeted at upscale demand for which this area has become famous. It is noteworthy that many of these projects are being developed with international investors including one from Malaysia in addition to Indonesian parties. One of these projects, the former Santi Resort is expected to open this year. The Mangsit Beach area with venerables including Puri Mas Resort, Qunci Villas and Jeeva Klui has developed into a cluster of successful luxury boutique resorts in a quiet setting yet proximate to the tourism center of Senggigi. We also expect the Gili Islands off Northwest Lombok to experience an increase in hotel product and redevelopment/repositioning of some of the existing hotel stock.
Contrary to some opinions, TSI research indicates that a decade from now, the Southern Lombok area will outstrip the Northwest in terms of number of new deluxe and luxury hotel rooms. If development remains controlled, areas with a niche such as Senggigi, Mangsit and the Northern Gilis will all have a bright future. In the South, land banking that has been active with investors for two decades has helped to assemble numbers of large tracks of land that will facilitate rapid development of South Lombok. The Sundancer hotel is significantly completed and could open in 2015. In addition to Mandalika there is a steady stream of investors from Jakarta, Singapore, Hong Kong and beyond that are rapidly developing plans to develop multi-property master-planned resorts and hotel product and support businesses in the South. When discussing the South we should note that not only do we anticipate significant development on Lombok’s Southern beaches but also in the Southern islands as investor activity in this area is significant. Our research gives us confidence that the first of these and probably more than one, will open by 2018.
While it is not possible to determine the exact completion date of the many projects being discussed, TSI has reviewed the market and its research indicates that by 2022, the hotel room supply in Lombok will certainly double from current levels.
Tourism Solutions International (TSI) is a hospitality investment firm that in addition to its investment and asset management activities, conducts select advisory work that is related to investment within the industry. Established in 1991, it’s Principal and associates have worked in the industry throughout Asia since the 1980’s.
TSI and its founder, Eric J Levy, have been involved in numerous notable hotel acquisitions, developments and redevelopments throughout Asia over the last three decades.
TSI is driven by a mentality of achieving bottom-line results while maintaining the highest of ethical standards related to both its investment activities and advisory services.
Positive and long-term relationships whether with partners, clients or service providers are highly valued by TSI.
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