The Indonesian hotel industry enters 2026 under growing pressure as government budget reallocation and weak demand reshape market dynamics. Industry players now face a more cautious outlook after strong reliance on government-related bookings in previous years.
According to the Indonesian Hotel and Restaurant Association (PHRI), demand risks have intensified as public spending priorities shift away from travel and accommodation. As a result, hotels must adjust strategies while managing rising costs and external uncertainties that continue to weigh on performance expectations.
Budget Reallocation Pressures the Indonesia Hotel Industry
Government budget reallocation stands out as the most immediate risk to hotel performance in 2026. PHRI Chairman Hariyadi Sukamdani warned that the hotel sector faces a higher vulnerability than the restaurant sector due to reduced government travel and event spending. Speaking at the PHRI National Working Meeting I 2026, he said, “So clearly in 2026, if we talk specifically about the hotel sector, it is somewhat risky—risky in terms of occupancy.”
Previously, official travel, meetings, and institutional activities supported hotel demand across major cities. However, the government has redirected funds that were once allocated for accommodation and business travel. Hariyadi explained, “Why is that? Because the government is implementing broader budget efficiency. In a broader sense, it is not truly efficiency, but rather a reallocation of the budget. Funds previously allocated for official travel and accommodation have been shifted to other uses.” Consequently, hotels now face weaker booking pipelines from one of their most stable customer segments.
Government Demand Declines and Occupancy Risks Rise
The decline in government demand creates direct pressure on hotel occupancy and revenue. In many mid-range hotels, government-related bookings can contribute up to 40 percent of total demand. Therefore, budget reallocation poses a material risk to overall performance in 2026.
According to PHRI, changes in fiscal priorities have a significant impact on the MICE segment and institutional events. As these activities slow, hotels struggle to quickly replace the lost volume. The Indonesian hotel industry now operates in a more competitive environment, where private and leisure demand must compensate for shrinking public sector bookings. Without sufficient replacement demand, occupancy rates and average room revenue are likely to decline further throughout the year.
Rising Costs Add Pressure on Hotel and Restaurant Operators
Beyond demand risks, hotels and restaurants also face rising operational costs. Higher utility tariffs, increased minimum wages, and additional tax burdens continue to push expenses upward. These cost pressures emerge at a time when demand recovery remains uneven.
At the same time, global economic uncertainty and external risks compound operational challenges. PHRI highlighted that potential disease outbreaks remain difficult to predict and cannot be fully mitigated by industry players. Experience shows that tourism is often the most affected sector during health crises. Therefore, hotel operators must manage both controllable cost factors and unpredictable external risks while protecting business continuity.
Indonesia Hotel Industry Shifts Strategy to Tourism Markets
In response, the Indonesian hotel industry has begun shifting focus toward tourism-driven demand. PHRI now encourages hotels to expand market reach by targeting domestic and international travelers. Collaboration with airlines, tour operators, and travel platforms forms a key part of this strategy.
“To address this, we are making efforts to find new markets. Working with airlines, tour operators, and destinations is one way we are targeting tourism-related markets,” Hariyadi said. Hotels have also increased marketing efforts ahead of major travel periods, including Ramadan and year-end holidays. Additionally, industry players now prioritize operational efficiency and flexible pricing strategies to maintain competitiveness amid changing demand patterns.
Industry Outlook for 2026 Remains Cautious
Overall, the outlook for the Indonesian hotel industry in 2026 remains cautious as budget reallocation and weak demand persist. PHRI expects hotel performance to stay below 2025 levels if fiscal policy shifts continue. “For 2026, if budget reallocation continues, performance will certainly be lower than in 2025,” Hariyadi said. However, recovery opportunities still exist as tourism activity improves and hotels adapt to a new demand structure.
Source: industri.kontan.co.id
Image: Deniskot / Getty Images
