How to Attract and Manage Domestic Demand in Indonesia

By: Tracy Dong, Senior Advisor, IDeaS Advisory Services

The hotel guest of today is very different compared with twelve months ago. There is the obvious widespread appearance of masks and social distancing practices, but also where these guests have travelled from is more likely to be far closer to home than before.

COVID-19 and government-mandated travel restrictions have resulted in demand from key international and business segments disappearing for hotels. While hotels are unlikely to see a surge in demand from international markets anytime soon, there are signs of occupancy growth across the Asia-Pacific (APAC) region occurring from domestic sources. According to STR, the APAC hotel industry has reported performance improvements from 2020 occupancy and RevPAR lows, due to strengthening demand from domestic sources.

However, not all hotels have been able to immediately benefit from this rise in domestic travel, particularly those in markets where domestic demand itself is limited. While some markets like Australia have preexisting domestic travel markets, this cannot be said for destinations like Singapore or Bali that largely cater to international guests.

For example, prior to COVID-19, overall domestic demand (which was mainly staycation business over weekend periods) contributed less than 10 percent of Singapore hotels’ total revenue. So even if a hotel in Singapore can take a major share of that market, if domestic demand is not grown overall, the available pool of guests is limited and unlikely to significantly drive a hotel’s recovery.

Given the short-term importance of domestic travel markets to the hotel sector, what can Indonesian hotels across the region be doing to attract and cater to more domestic guests?

Lessons from China

While no two markets are exactly alike and each destination will have a different path to recovery, there are clear trends from the Chinese market as to how their domestic travel market rebounded in 2020. Pleasingly, all segments of domestic travel, including leisure and business, rebounded.

According to research conducted by McKinsey & Company, China witnessed sustained growth from both domestic leisure and domestic business travel segments over the middle of 2020. The percentage of research respondents who took domestic short-distance trips increased from 19 percent to 31 percent from May to August, and business travel increased from two percent to 25 percent over the same period.

Leverage partnerships and tailor promotions

Hoteliers operating in markets that do not have a large base of domestic demand to capture should work closely with partners, including tourism bodies, to stimulate overall interest in domestic travel. The recent travel voucher campaign in South Australia is a good example of a campaign that was leveraged by local hoteliers to drive incremental accommodation nights. The booking window for the campaign was approximately six weeks and with demand heavily skewed towards weekends (Saturday nights were exempt from the campaign).

What the post-campaign analysis showed was that for the Adelaide market, Saturday nights still showed an increase in demand irrespective of the campaign being in market. However, during the campaign period shoulder dates such as Sunday, Friday and Thursday night saw an influx in demand and to a lesser degree midweek. These tourism board initiatives and subsidised promotional campaigns, such as that which the Singapore Tourism Board is running with their Discovery Vouchers, can help drive overall interest in domestic travel that hotels can try to attract for their properties.

Domestic versus international guests

For hotels in the APAC region, domestic demand is likely to predominantly be for the leisure market and weekend-driven. As a result of travel being closer to home, long-term planning will shift, and hoteliers will witness a significant reduction in booking lead time as well the influx of shorter trips.

The channels through which domestic travelers will book can differ from international guests. Domestic guests that may be more familiar with the destination and range of properties in the market will more likely have more knowledge and book directly with a hotel. This differs compared with a new international customer who is not as familiar with the destination and will often research, compare and book with an OTA.

It should be noted as well that local domestic guests may be more interested in short ‘getaways’ to relax as part of a staycation experience. Whereas an international traveler may be more interested in a fully immersive experience that offers insights into their foreign destination.

Domestic demand building tactics

To attract demand from domestic markets, hoteliers need to rethink their market segments and guest personas. By understanding the motivations of hotel bookings under each guest persona, along with the expectations of their guests, hoteliers have a better chance of attracting demand from domestic sources and converting this into repeat business.

Hotels must get creative with their offerings if they are to grow their business through attracting new segments of domestic guests which did not exist before. For example, a hotel located in the center of a major city which primarily catered to business travelers might create a pet-friendly staycation package including dog grooming and day spa passes for pet owners. Also, hotels should consider new ways to leverage unused event spaces within their property to build ‘work from hotel’ packages.

To increase the confidence of domestic guests staying out-of-home, hotels need to clearly publicise their cleaning and hygiene protocols to guests, including via email in the lead-up to a guest’s arrival. Hotels should also provide contactless check-in procedures and be properly staffed to handle front desk needs quickly and avoid lines and overcrowding.

As hotels compete to attract local demand, its connection with the local community will become even more important to differentiate a hotel’s brand. Hoteliers may extend booking to include unique tours of lesser-known aspects of their city so guests can experience something different with their staycation. Or, a hotel may create an Instagram-able picnic or glamping set up for guests in a decking area that overlooks a river or significant landmark. These offerings will present social media opportunities that build positive online promotion for a hotel, making the property ‘visible’ and attractive for potential domestic guests.

As domestic travel increases across the APAC region, opportunities exist for hotels to position themselves to their local market with safe, creative offerings to grow occupancy and revenues. Through understanding market trends and targeting domestic guests with the right promotion and the right message at the right price, hotels will be best placed to begin their own local recovery.

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