Bali hotels are reducing room rates in the course of falling occupancy rates as the global economic downturn places a downward effect on the tourism-dependent economy.

The overall foreign arrivals rose to a record 1.97 million last year as the island rejuvenates from the impact of the 2005 terrorist attack. The second largest market behind Japan, Australia made up for more than 300,000 visitors, up 51 per cent from the 2007 period.

The recovery is likely to be disrupted in the course of the international credit crunch with the Bali Tourism Authority predicting foreign visitor numbers will decline 8.6 per cent to 1.8 million in 2009.

Hotels are desperately trying to fill rooms. The budget to mid-range establishments popular with New Zealander’s are offering the biggest discounts, with a number of them halving published rates, while the more up market hotels and resorts that are being effected by a slow down in the executive market are doing their best to be more creative in their reaction to the downturn.

Bali Hotels Association executive director Djinaldi Gosana was quoted saying “Some two and three-star hotels and resorts are panicking and reducing their rack rates”

“That is not a good idea. We know from past experiences, after the Bali bombings that when we cut the rates, it’s very hard to put up again.”

The 3 star hotel, the Melasti Beach Hotel in Legian is selling its standard room at US$45 net per night, reduced from US$96, and is adding in breakfast for free, while the 4 star hotel, the Dynasty Hotel in Tuban has reducing its standard rate to US$80 from US$145.

The price war is sparking a rethink from many Australians who would, if not be reluctant to travel in the present economic climate.

“I know a number of people who have actually cancelled their European trips and are now traveling to Bali,” said Fiona Healy from Melbourne, who spent 2 weeks in Bali

Although the top-end hotels are feeling the hurt, they are more hesitant to reducing their rates, Djinaldi said.

As an alternative, they are giving bonus nights, meals or spa treatments to affluent guests who are reining in prolific lifestyles.

The exclusive Amanresorts group, the owner of 3 properties in Bali, said it had no plans to lower rates, but had cancelled an intended hike that would have increased its minimum published rate from $US908 to US$1029.

“We will not be reducing our rates,” said Amanresorts Indonesia area manager Monty Brown.

“Nevertheless, we recently made a decision to continue using our 2008 rates during 2009 instead of introducing a planned increase.”

Other hotels such as The Bale in Nusa Dua increased their rates at the top of peak season last year before tourist numbers started declining.

Now, they are reluctant to reduce them. The Bale’s general manager Jose Luis Calle said he believed reservations will rise again in the next few months. He is holding prices firm despite a 20-30 per cent decrease in occupancy this month from a year ago.

“We just increased our room rates by 10 per cent last August to September after refurbishments and we are maintaining those, but with additional bonuses from extra room nights and meals depending on the inbound market, makes the rate very much the same as before the increase,” he said.

“We are giving more value for money as people are having second thoughts about going on holiday now. This time around it’s not just a Bali concern, it’s worldwide.”

The Legian, whose prized villa has a US$3000 per night price tag for the fashionable seaside resort in Seminyak, shares the same feeling.

The hotel is encountering a 10-15 per cent decline in occupancy, sales and marketing director Samuel Gacos said.

“Our focal point is not rate adjustment but instead extending more significance to our offers,” he said, “There’s a change in travel patterns generally. The frequency of travel is declined, the average length of stay has decreased, and bookings are being done last minute”.