Can Indonesian travel agencies attract the middle class?

With an internet adoption rate of 64.8% as of 2018 and a widening middle class, online travel agencies (OTAs) have become increasingly popular in Indonesia in recent years. OTAs do not require the same level of infrastructure, staff and working capital as traditional travel agencies, and the convenience they provide to businesses and individuals alike has been key to their expansion. Local brands such as Traveloka, Pegipegi and Tiket.com continue to diversify their operations and products for a population increasingly drawn to technology for purchases.

Traveloka purchased Pegipegi in December 2018, part of a $66.8m deal with Japan-based Recruit Holdings that also included Vietnam’s Mytour and the Philippines’ Travelbook, both OTAs. The two Indonesian OTAs have different focuses, with Pegipegi primarily offering domestic hotel, flight and more recently bus travel bookings, while Traveloka – the first unicorn to emerge from the Indonesian OTA market – offers an array of accommodation and flight options throughout South-east Asia. Traveloka also has operations in Thailand, Vietnam, the Philippines, Malaysia, Singapore and Australia.

The success of Indonesia’s OTAs highlights the opportunity for local firms with detailed knowledge of the domestic market, as well as for continued growth in the segment overall. While the Covid-19 pandemic will likely slow expansion in the short term, once economies and borders reopen, online services such as OTAs will be well positioned to leverage their services to potential travellers.

Product Diversification

Originally founded as a flight aggregator, Traveloka moved to online airline and hotel bookings, taking advantage of Indonesians’ rising standards of living and disposable income. It raised $350m from US travel giant Expedia in 2017 and, more recently, raised $420m from Singapore’s sovereign wealth fund and existing investors in April 2019. Part of the funding was used to finance expansion into tours, activities and lifestyle. In June 2019 Traveloka launched its Xperience platform, offering lifestyle packages and activities such as movies, travel essentials, sports, and beauty and spas. As of October 2019 Traveloka Xperience had been downloaded more than 40m times and offered over 15,000 activities in 60 countries, including Indonesia. It also features 40 payment options.

The company also branched out into financial services. In September 2019 it launched PayLater Card, a credit card in partnership with Visa and Bank Rakyat Indonesia. The approval process is less time consuming than for a traditional card, and can help customers who lack credit access to book flights in advance, when they are cheaper.

Meanwhile, Pegipegi has sought to replicate the dynamics of social media by encouraging users to share photos from trips booked through the company on its platforms. The engagement allows the company to convey its offerings to potential customers. “Indonesian tourists are interested in authentic experiences, in our diverse culture and what the country has to offer,” Kevin Sandjaja, founder and CEO of Pegipegi, told OBG. “For that reason, tourism agencies should consider expanding to include culturally oriented and experiential travel offerings.”

Challenges

While the online travel market had been growing in recent years, the Covid-19 pandemic has had a severe affect on the segment and the sector as a whole. In April 2020 Traveloka had to lay off one in 10 of its employees following a surge of refund requests starting in February of that year, after borders closed and countries implemented social distancing measures. Traveloka was not alone in being impacted by the pandemic. In April 2020 the government announced it expected that the Covid-19 pandemic would reduce tourism revenue by $10bn over the course of the year, with tourism arrivals falling from 16.1m in 2019 to 5m in 2020.