Competition, regulations pose challenges for Shariah-compliant hotels
Shariah-compliant hotels in Indonesia are being put to the test on the back of stiff competition from online travel agents (OTAs).
Their challenges are also compounded by changing regulations.
Halal hotel owners are not protected from the disruption created by OTAs, that are beckoning a massive pool of customers due to their budget pricing strategies, according to Riyanto Sofyan, chairperson of the Indonesia Halal Tourism Association (PPHI).
Traditional halal hotel owners are left with no option but to collaborate with them to bring in more traffic.
Unfortunately, this collaboration comes at a cost, where they must pay a platform fee of around 15% to 20% and are further prohibited to offer the same price on their websites. Once a halal hotel operator collaborates with an OTA, it has practically no control over pricing of its own properties.
“It’s a dilemma. Through collaboration we can get additional customers, but they control pricing. It’s not fair and square; there must be another way,” said Sofyan.
This is primarily why Indonesia-based Sofyan Hotel, owned by Sofyan, and other halal hotels operating under the association’s ambit try to develop Muslim-friendly service and product features and list them on their respective websites. But it is not enough to compete with online travel agents.
The price monopolized by OTAs, has become a hurdle for Sofyan Hotel to return to pre-pandemic revenue levels. Prior to the pandemic, Sofyan Hotel recorded $1.5 million in revenue. Occupancy rates have bounced back to between 80-90% since then, but revenues are only 70% of pre-Covid times.
Furthermore, many OTAs are entering the Shariah-compliant hotel market. OYO, a platform offering hotels and homes, is targeting many new Shariah-concept properties across several locations in Indonesia, said Adeline Virgina Tashya, the platform’s corporate communications manager for Indonesia and Malaysia.
Changing regulations
The competition is getting more incongruous due to changing regulations.
For example, the ‘Regulation of the Minister of Tourism and Creative Economy Number 2 of 2014’, pertinent to guidelines for the implementation of Shariah-compliant hotel businesses, was revoked and replaced by another regulation, which has led all halal hotel operators to refer to the directive (also known as fatwa) of the National Sharia Council of the Indonesian Ulema Council (DSN MUI).
The National Sharia Council is in charge to issue regulations on Shariah-related matters, and oversee its implementation.
The revoked directive earlier regulated halal hotel owners in a more rigid and detailed manner, in addition to implementing the guidelines from the fatwa. For starters, a Shariah hotel business certificate provided by DSN-MUI was mandatory as proof that the hotel operator has fulfilled all relevant Sharia business criteria.
The certificate was granted through an audit to assess the suitability of the product, service and management of the hotel business in accordance with related Shariah criteria, protecting Muslim consumers from all aspects of the aforementioned elements of the business.
This is why the certificate was an official recognition that assured consumers of the hotel and its services, alleviating any suspicion or doubt.
“The certificate in the past wasn’t easy to achieve but it was necessary for halal hotel operators. It also justified premium pricing practice. Psychological pricing practice is no longer based on functional and rational benefits which is commonly used in conventional hotels, but rather on emotional and spiritual reasons where customer value more halal hotel operators that maintain values of the Sharia,” said Sofyan.
Meanwhile, current regulation fatwa DSN-MUI Number 108 only monitors seven common guidelines. First, Sharia hotels must not provide access facilities for immoral acts; they must not provide entertainment facilities that lead to polytheism, immorality, and/or immoral acts; food and beverages provided by Sharia hotels must have obtained a halal certificate from MUI; equipment and facilities for the implementation of worship, including purification facilities, must be provided.
Hotel managers and employees must also wear modest clothing; while hotels must conduct services in accordance with Islamic principles such as request guests to show a marriage book. Lastly, Sharia-compliant hotels are required to use the services of Islamic financial institutions.
“I can't judge the halal-compliance levels of an OTA hotel. The problem is that the government does not have any rigid regulations anymore, only guidelines through the fatwa,” added Sofyan.
