BMI's Executive Summary

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New Business Environment Rankings

For 2008, BMI has made wholesale changes to the methodology behind its proprietary Business Environment Rankings for the tourism industry across Asia. Our new rating system is divided into distinct areas: limits of potential returns, which evaluates the size and growth potential of every state's tourism industry, and also broader factors that may inhibit its development over the coming years; and risks to potential returns, which evaluates industry risks and threats coming from the state's political and economic backdrop that may impede the realisation of anticipated returns from the sector over our forecast period.

These ratings have been developed to complement BMI's range of country risk ratings and now all of the 16 industries covered by BMI are integrated under one methodology. In these new ratings, Thailand emerges as the best-placed country in Asia, scoring 68 points out of a possible 100. The country has recovered well from the tsunami of late 2004 and continues to prioritise the tourism industry as a key source of foreign currency earnings. The lowest-placed countries are Indonesia and Vietnam, which both score 56 points. Indonesia is penalised for the still-high risk of further bombings on the key tourism island of Bali, while Vietnam is still only in the very early stages of establishing a dedicated tourism policy. Indeed, it was only in September 2007 that the nation created its first ever ministry of tourism.

Latest Tourism Arrivals Figures

Tourism arrivals figures have continued to remain robust, in line with BMI's own forecasts. Foreign tourist arrivals rose by 13.5% year on year (y-o-y) over the first eight months of 2007, to reach 2.97mn, according to data released by the Central Bureau of Statistics.

Bali continues to enjoy a resurgence in popularity, as memories of the suicide bombings of 2002 and 2005 start to fade. Arrivals to the resort island were up by 34.5%, to 1.13mn, over the Jan-Aug period. We have long predicted growth of 15% in tourist arrivals for 2007 and 2008, and consequently see no reason to change our forecasts at present.

Nonetheless, we would caution that there are clear downside risks to these forecasts should there be further terror attacks or another tsunami or similar natural disaster. The spate of fatal air crashes within the archipelago across 2007 will also have done little to reassure tourists about the safety of travelling on Indonesian domestic flights with local carriers. However, these essentially intangible eventualities are impossible to incorporate into our core forecasting scenario.

New Company Profile

For 2008, BMI has added a new company profile to its Indonesia Tourism Report, on Lion Air. This airline surpassed Garuda Indonesia as Indonesia's biggest airline in 2005 and now has ambitious expansion plans across the Asia-Pacific region.

Bird Flu Update

At the end of September 2007, a 24-yr old man became the 86th victim of bird flu in Indonesia, out of a total of 107 cases so far reported. Indonesia has suffered far more human deaths from bird flu than any other country in the world.

The country has struggled due to a reluctance on the part of farmers to hand over their sick or potentially infected birds for slaughter. The country is to increase spending on combating the virus to US$126.5mn in 2007, up from US$91mn in 2006. Also, in April 2007, the US Department of Agriculture opened a representative office in Jakarta, which will consist of four local scientists and one from the US, plus support staff. The group will conduct workshops for Indonesian health and animal husbandry officials and veterinarians to detect the virus and prevent its spread.

Oil Prices Once More On The Rise

The second half of 2007 has seen oil prices once again making record highs. BMI's economic analysts believe that oil prices will remain in elevated territory well into 2008, which will see fuel costs once more becoming a headache for international airlines. Our average price forecast for Brent crude for 2008 is US$72.00/bbl.

Chapter 1 - New This Quarter

Core Projections

Bird Flu

Singapore Domestic Demand Supportive

Exchange Rate Factors Remain Broadly Neutral

Airlines

Table: Indonesia Tourism Sector SWOT

Chapter 2 - Market Overview

Tourism Outlook

Key Source Markets

Latest Investment Trends

Table: Indonesia Travel Historical Data And Forecasts

Chapter 3 - Macroeconomic Forecast Scenario

In Recovery

Table: GDP And Population

Chapter 4 - H5N1 Virus (Update): Indonesia The Epicentre

Tourism Business Environment

Table: Asia Travel & Tourism – Business Environment Ranking

Politics – Long-term Risk

Overall Business Environment

International Tourism Receipts

Visitor Arrival Growth

Investment Environment

Shock Factor

Chapter 5 - Travel

Commercial Airlines

Oil Price Threat: Receding?

Table 9 Oil Price Forecasts

Hospitality

Accommodation

Table: Indonesia Accommodation Market Structure

Chapter 6 - Company Profiles

Garuda Indonesia

Angkasa Pura

Accor Asia Pacific Indonesia (AAPC)

Chapter 7 - BMI Forecast Modelling

How We Generate Our Industry Forecasts

Tourism Industry

Sources

Competitive Landscape for Asia Tourism Reports: Sample of Companies Ranked

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Comparative cross-border analysis assessing business and regulatory factors to rank Asia’s most competitive tourism markets. Indicators used include Political Risk, Business Environment Risk, Forecast International Tourism Receipts, Visitor Arrival Growth, Investment Environment and Shock Factors (taking account of any special factors such as terrorism, natural disasters and disease). Company SWOTs for leading resort, hotel, airline, travel and tourism operators in each market, including competitive intelligence on overall geographic presence, competitive positioning and relationships with international operators; % share of operator markets; % share of international arrivals and departures; % share of busiest domestic routes; main products and services; panregional expansion, merger and acquisition strategies.

Network of Asain Tourism Sources

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BMI's Asian Tourism Reports are based on an extensive network of multilateral organisations, government departments, tourism industry associations, chambers of commerce and company reports. Information sources include: