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Bali is by far Indonesia's most important tourism destination. In 2004, it accounted for 1.5 million (29%) of Indonesia's 5.3 million inbound visitor arrivals - 50% more than the capital, Jakarta. And if only guests in commercial accommodation are considered, Bali's share of foreign tourism was even greater, at 43%.

The resort has taken two dreadful blows from terrorist attacks: the bombings of October 2002 and October 2005, both deliberately and specifically intended to cause large numbers of casualties among tourists, and both naturally inflicting severe damage on the island's image as a desirable tourism destination. While recently reported trends suggest that, in the two months following the bombing of 4 October 2005, Bali's tourism proved more resilient than in 2002, the industry was nonetheless very hard hit.

In terms of arrivals, 2004 was the best year on record for the island, surpassing by 8% its previous best performance in 2000. Prior to the bombing, Bali was heading for a new record of over 1.6 million visitors in 2005, which would have represented growth of around 5%. The bomb reversed the trend, producing declines in arrivals of 37% in October and 43% in November (compared with the same months in 2004). Total foreign direct arrivals for 2005 in Bali reached 1.39 million, a drop of 9% compared with 2004, when the island attracted 1.52 million visitors.

However, the last quarter of the year (October-December) bears the full impact of the bomb with a drop of almost 40% in foreign arrivals. Arrivals dropped 52% during the last quarter for Japanese, 53% for Australians, 51% for Taiwanese and 56% for Koreans. By contrast, European travellers have been more resilient, declining by 'only' 10% since October. (It should be noted that only Australia, New Zealand and South Korea issued travel warnings against travel to Bali after the October 2005 bombings - far fewer countries than in 2002).

Traditionally, Japanese travellers are very sensitive about destinations where their safety might be at risk. Australia's decline is a major concern for Bali tourism as it generates nearly 18% of all arrivals. The impact of the recent travel advisory issued by the Australian government is, however, questionable, as an advisory did not deter Australian holidaymakers from travelling to Bali last time. But reduced airline capacity will have an effect. The collapse of Air Paradise, a Bali-based airline, which flew essentially to Australia, took 2,645 seats weekly out of the route to and from Australia. Even though other airlines stepped up their frequencies, capacity in January 2006 from Australia is nearly 2,100 seats lower than it was in January 2005.

Europe is Bali's third largest market, with over 225,000 arrivals in 2004. In contrast to Asian markets, Europe seems to be far more resilient. It is a more mature market, and Europeans are probably more blasés about acts of terrorism. Numbers for October and November show declines of 10% and 13% respectively. By comparison arrivals in November 2002, following the Kuta bombing, declined by 59%.

Surprisingly, two markets achieved growth: arrivals from France were up 10% and the Netherlands was up nearly 2%. Germany, Bali's largest market in Europe, declined by 24% in November and the UK market by 12%. However, according to reports from the Indonesian daily, The Jakarta Post, the European market recovered in December, thanks to a strong presence of Russian and German tourists. Hoteliers from the Nusa Dua resort area say that up to 40% of all guests in Bali over the Christmas/New Year period were Russians. Some Nusa Dua properties even experienced an occupancy rate of 100%.

Travellers from ASEAN come mainly from Malaysia and Singapore. Both markets have already started to recover, with the help of strong promotional efforts from airlines. Arrivals from ASEAN declined by 52% in October and by 40% in November, compared with the same months in 2004. Cheap air fares offered by AirAsia and Lion Air in Kuala Lumpur and the introduction of low-cost flights from Singapore's Jetstar Asia are likely to assist the recovery of both the Malaysia and Singapore markets.