Volcanic Risks and Tourism in Indonesia: A Playbook for Crisis-Resilient Investment

Indonesia's tourism sector, a vital engine of its economy, is navigating a precarious balancing act. With travel and tourism contributing an estimated IDR 1,269.8 trillion (5.5% of GDP) by 2025, the archipelago's reliance on visitor spending is undeniable. Yet this growth is shadowed by its geographic reality: sitting atop the Pacific Ring of Fire, Indonesia is home to over 150 active volcanoes, including Mount Semeru, Merapi, and Agung. These geological giants, while drawing thrill-seekers and adventurers, also pose existential risks to tourism infrastructure and livelihoods. For investors, the challenge—and opportunity—lies in identifying resilient infrastructure plays and alternative travel sectors that can thrive amid volcanic volatility.

The Volcanic Risk Landscape: A Double-Edged Sword

Indonesia's tourism-dependent regions face a stark reality. Take Bali's Mount Agung, which in June 2025 erupted, spewing ash clouds 10 kilometers high and grounding over 80 flights in a single day. Such disruptions underscore the fragility of an industry where international visitor spending remains 5.4% below 2019 levels (as of 2024). Meanwhile, Java's Mount Semeru, erupting every 3–4 hours, has become both a magnet for climbers and a reminder of nature's unpredictability.

Yet the data reveals a paradox: while volcanic activity threatens tourism, it also fuels it. “Volcano tourism” draws 18 million visitors annually, with travelers willing to pay premiums for guided hikes, gas-sensing equipment, and emergency preparedness. The challenge for investors is to hedge against disruptions while capitalizing on demand for adventure travel.

Crisis-Resilient Infrastructure: The New Frontier

The solution lies in infrastructure investments designed to withstand volcanic threats. Consider the following opportunities:

1. Disaster-Resistant Airports and Ports
2. Why invest? Volcanic ash can cripple aviation (as seen in 2025's flight cancellations). Airports like Ngurah Rai in Bali require hardened runways and real-time ash sensors.
3. Who to watch? Sembcorp Industries, a Singapore-based infrastructure firm, is building ash-resistant facilities.

5. Smart Monitoring Systems

6. Why invest? Companies like PT Len are deploying AI-driven gas sensors and evacuation alerts. These systems reduce risks for hikers and local communities.

7. Why now? The Indonesian government plans to issue “volcanic resilience bonds” to fund such projects, offering tax incentives for private investors.

8. Resilient Accommodation

9. Why invest? Hotels and resorts in high-risk zones (e.g., Java's Bromo-Tengger-Semeru National Park) need retrofitting with ash-proof materials and emergency power.
10. Who to watch? AccorHotels and local operators in Indonesia's “10 New Balis” initiative are expanding into less volcanic-prone regions like Lombok and North Sumatra.

Alternative Travel Sectors: Diversifying the Risk

Investors shouldn't bet solely on physical infrastructure. The rise of volcano-themed tourism and eco-conscious travel opens new avenues:

1. Adventure Tourism Operators

2. Companies like PT Bali Adventure Tours offer guided Semeru hikes with safety gear and evacuation plans. Their revenue grew 9% in 2024 despite eruptions, as thrill-seekers demand expert risk management.

3. Sustainable Tourism Funds

4. Why invest? ESG-focused funds targeting eco-lodges and community-based tourism in low-risk areas (e.g., Sulawesi's Togean Islands) can hedge against volcano-driven volatility.

5. Insurance Plays

6. Insurers like Allianz (ALV.DE) and AIG (AIG.N) are expanding volcanic-risk policies. AIG's “Adventure Travel Coverage” saw a 14% uptake in 2024, protecting travelers and businesses against eruption-related cancellations.

Key Investment Considerations

• Risk-Adjusted Returns: Volcanic regions offer higher yields but require diversification. Pair exposure to volcano-rich areas with investments in safer zones like West Sumatra or Flores.
• Government Backing: Monitor Indonesia's “volcanic resilience bonds” (expected Q3 2025), which could offer 7–9% yields with tax shields.
• Tech Partnerships: Firms integrating AI for volcanic monitoring (e.g., PT Len's collaboration with Siemens) will dominate the sector.

Conclusion: Embrace the Volcano

Indonesia's tourism economy is a high-stakes game of volatility and opportunity. For investors, the path forward is clear: allocate to infrastructure that mitigates risks and back travel sectors that capitalize on adventure-driven demand. While eruptions will continue to disrupt, the nation's strategic pivot to resilience—through bonds, tech, and diversification—positions it to thrive.

The volcano's edge is where fortune lies.