Indonesians are among the most connected people on earth. They are the largest group of Facebook users and eager adopters of mobile apps like ride-sharing service Go-Jek and e-commerce marketplace app Tokopedia, which achieved growth of 600% in just two years, between 2011 and 2013. Out of a population of over 250m people, some 72.7m Indonesians are active on the internet, while 64m are active users of social media via mobile devices. Indeed, with a cellular penetration rate of 121%, nearly everyone on the archipelago has a mobile phone, or even two, and as incomes rise, telecoms companies roll out 4G networks and the price of smartphones fall, more Indonesians are switching to this type of device.

Growth Potential 

In May 2016 a joint study by Google and Singapore’s state investment firm Temasek Holdings entitled “e-conomy SEA” found that South-east Asia, led by Indonesia, was the world’s fastest-growing internet market, spelling huge potential for the online travel market. The study predicted that the regional market for online travel, including hotels, airlines and rides, will expand to nearly $90bn by 2025, compared with $21.6bn in 2015, with Indonesia expected to generate a third of that growth. The report also said that, as civil aviation in the region is dominated by budget airlines, hotels and airlines will make up about 85% of this total.

New Dynamic

The traditional travel industry, with its substantial network of physical shops and agents, has long-dominated the country’s tourism business. An estimated 90% of all travel business in Indonesia was done offline as recently as 2013, according to online travel consultancy Web in Travel. Now, however, online innovations are disrupting the status quo. The rapid growth of low-cost carriers in the country, which usually sell their tickets online, has helped build trust in e-commerce among the population, despite the fact that online transactions in Indonesia are 12 times more likely to be fraudulent than the global average, according to “e-conomy SEA”. This has led to strong competition in the broader travel market between Google and other international companies, such as Uber, Agoda and Expedia, with a host of local rivals, from start-ups to more established brands.

Digital Drive 

Perceiving digital media and online innovation as a crucial platform for the travel industry, the Ministry of Tourism (MoT) is looking to step up development and discover a way to increase business from both domestic and international travellers. A key component of the digital drive is Travel X-Change Indonesia (TXI), which was launched to mark Indonesia’s 71st Independence Day in August 2016.

Based on a similar product in Australia, TXI is designed as a one-stop service for both the travel industry and consumers, displaying travel offerings across the archipelago and allowing users to compare the various available travel packages and tours and make bookings. “Traditional travel agents will be left behind if they do not take this opportunity,” Arief Yahya, minister of tourism, told local press in May 2016, adding that the ministry would also provide advice on website design to help agents make their products look as tempting as possible.

The minister believes the digital platform can help Indonesia meet its goal of attracting 20m foreign tourists by 2019, and has been running a promotional campaign to encourage more local travel agents to sign up to the site. As a testament to its ongoing commitment to digital travel, in 2014 the MoT relaunched its promotional website “Wonderful Indonesia”. The revamped site has been made easier to navigate and includes eye-catching photography to emphasise the country’s ample natural assets. It is also updated regularly with suggestions for travel, highlighting seasonal events, attractions and experiences.

With a higher budget for overseas promotions – triple the level of 2015 – the MoT is also expanding its marketing campaigns and dedicating a greater proportion of its funding to digital initiatives. The overseas promotions budget is estimated at about Rp3trn ($219m), with 40% of that earmarked for digital promotion, including social media.

According to Statista, which tracks the growth of the online travel market in Indonesia, travel booking revenue generated online – excluding all offline payments – has so far reached $1.34bn in 2016, with a combined annual growth rate estimated at 16.45%, until 2020. Most bookings were for hotels, followed by package holidays and accommodation rental.

Game Changers 

Some Indonesia start-ups have already begun to make their presence felt in the digital world. Travel bookings site Tiket.com, set up in 2013, now boasts partnerships with 14 airlines, 180,000 hotels and 15 banks across Indonesia, according to local press reports. After the launch of its mobile app, the site saw hotel and airline bookings more than double in 2015 compared to 2014, with most of its Indonesian customers booking local rather than overseas trips. Despite this success, Gaery Undarsa, co-founder and managing director of the site, told the Pacific Asia Travel Association in September 2016 that the company is careful to maintain links with the physical travel industry, partnering with 4000 subagents nationwide, often in far-flung locations, so that customers can book online but pay offline.

Another start-up that has seen rapid expansion since its inception is Traveloka. Founded in 2012, this flight search and bookings app has attracted funding from Global Founders Capital and East Ventures, sealing partnerships with 70 international and domestic airlines, and listing more than 100,000 hotels both in Indonesia and overseas. In WPP and Millward Brown’s 2016 BrandX survey of Indonesia’s most valuable brands, it placed first out of a total of 50 brands in the “one to watch” category.

Meanwhile, Panorama Group, the country’s biggest travel agency, with business arms in transport and hospitality, has been described by Travel Weekly Asia as an “old company learning new tricks”. The group is investing more in its online operations to cater to the millennial generation and currently has four online businesses, including hotel bookings, which it started back in 2013 in partnership with Booking.com, in addition to a “daily deals” website similar to Groupon, but focused on travel-related products.

Next Steps 

The ultimate success of the online travel industry will largely depend on whether Indonesia can address the limitations of its ecosystem. Similar to many of its South-east Asian neighbours, the country struggles with a lack of developer talent, limited funding networks, slower-than-average internet speeds and a high risk of fraud. Its drive for success in the digital economy should elevate such issues to the top of the policymakers’ agenda, creating a business climate that will enable the tourism industry’s innovators and entrepreneurs to thrive.