[JAKARTA] Indonesia’s hospitality sector is feeling the chill as sweeping budget cuts under President Prabowo Subianto’s administration begin to bite – stripping away a vital source of income for hotels long reliant on government events, official travel and corporate retreats.
Hotel occupancy rates in several regions have plunged to as low as 20 per cent, said the Indonesian Hotel and Restaurant Association (PHRI), sparking concerns of a broader slowdown just as the sector was finding its footing post-pandemic.
Government-related bookings make up 40 per cent of total hotel demand, noted the industry association, underscoring the sector’s heavy dependence on public spending.
He warned that if the trend continued, the hospitality sector could face mass lay-offs in the coming months.
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“We urge the government to execute at least the remaining 50 per cent of the budget, rather than keep it at zero,” he added.
Late last year, Prabowo called for a 50 per cent cut in the travel budget to streamline government spending and reallocate funds to vital programmes, such as providing free meals for schoolchildren.
The government has restricted travel to business trips and seminars, and only for events deemed critical, severely limiting other activities.
Ferry Salanto, head of research at Colliers Indonesia, warned that the cuts were casting a long shadow over the hotel industry. He estimated 60 to 70 per cent of hotels have felt the squeeze, especially those in major cities such as Jakarta and Surabaya.
Bogor-based Sahira Hotels Group is the latest casualty to surface, with the Mar 29 announcement in its social media pages of the temporary closure of two of its boutique hotels in the city.
In a management letter addressed to PHRI, the company pointed to government belt-tightening as the culprit, stating that budget cuts had dried up demand, sending occupancy rates into a freefall.
“Hotel operations will be suspended until further notice,” said the letter as seen by BT.
Colliers’ Salanto noted that Sahira’s decision to close its hotels came in the run-up to what would traditionally have been one of the most lucrative periods for the hospitality sector, the Idul Fitri period.
Salanto said: “We expect other hotels with similar reliance on government contracts may follow suit. While some may weather the storm, others are likely to struggle significantly due to these policy shifts.”
Slowdown expected
Idul Fitri, usually a time of vibrant demand in Muslim-majority Indonesia, is set to experience a slowdown this year, with analysts attributing the dip to a sluggish economy and waning consumer confidence.
The Ministry of Transportation recently disclosed that the number of “pemudik” or homecoming travellers is expected to drop by 24 per cent in 2025; an estimated 146.5 million people are making the journey, down from 193.6 million in 2024.
This decline is a troubling sign for the economy, as the movement of people for the festive season has historically been a key driver of consumption in Indonesia. With fewer people travelling, the ripple effect on various sectors is bound to be significant.
Mandiri Institute has noted that this year’s Ramadan is shaping up to be a slow burn, with consumption levels rising more slowly amid more cautious spending by consumers.
Its survey of 300 business owners in commercial areas such as Legian-Seminyak in Bali and Blok M in Jakarta found that most retail merchants rang up lower sales in Q1 2025 than in the year before.
Johan Beni Maharda, an analyst at the institute, highlighted that hotels registered the sharpest decline, followed closely by fashion, personal care, mini-marts and restaurants.
“Budget-efficiency policies should be balanced with the acceleration of other government spending, taking into account sectoral and regional conditions,” he said.
Economists have predicted that the government’s budget cuts would be a key factor affecting near-term growth.
OCBC has forecast Indonesia’s Q1 growth this year to be 4.8 per cent, down from the previous estimate of 5 per cent. For the full year, the growth projection has been revised to 4.9 per cent, from an earlier estimate of 5.1 per cent.
Major spender
Indonesia’s hospitality sector thrives on the government’s spending spree.
In regions such as South Sulawesi and Central Kalimantan, government bookings account for a significant 60 to 70 per cent of the market, predominantly filling three to five-star hotels.
Even in Bali, a hot spot for international tourism, around 40 per cent of the demand for hotels is driven by government events.
Major global events such as the G20 summit and the International Monetary Fund-World Bank meetings were once the lifeblood of Bali’s hospitality sector.
However, since the elections, Indonesia has yet to host any large-scale events capable of drawing international tourists, causing a sharp drop in market activity.
Sukamdani said that the total potential revenue loss for hotels operating nationwide could reach 25 trillion rupiah (S$2 billion) in 2025, as reservations of rooms and meeting venues at three- to five-star hotels plunge due to the cuts.
The ripple effect has been felt beyond the hotels – disrupting other sectors such as transportation and souvenir vendors, all of whom depend on the steady flow of holidaymakers and government events.
In response to the ongoing challenges, the PHRI has intensified its international marketing efforts to boost tourism and hotel demand.
The association has been actively engaging in global exhibitions and trade shows to promote Indonesia’s hospitality sector and to attract foreign tourists, moving away from an over-reliance on government bookings.
“This situation is a wake-up call for the industry. Moving forward, we must seriously develop alternative markets, particularly international tourism,” Sukamdani said.
