Hungarian Travel and Tourism Faces Slow Recovery

BBJ: The contribution of travel and tourism in Hungary has always been higher than the OECD average. Why?

Tamás Flesch: Yes, this is true. Only giant tourist destinations such as France or Italy rank before Hungary in this term. Like it or not, this is mainly due to Budapest. I may sound biased, but I think that Budapest is one of the most beautiful travel destinations in the world and holds a solid touristic value. Some two-thirds of Hungary’s foreign guest nights are realized in the capital city. The country’s total commercial accommodation revenues were HUF 550 billion in 2019, of which foreign visitors generated some 50%. At the same time, we see that domestic tourism is also becoming stronger due to increasing spending and the introduction of the so-called “SZÉP Kártya” (Széchenyi Relaxation Card) into the cafeteria scheme. At present a total of HUF 200 bln is stockpiled in the “SZÉP Kártya” system, which can only be spent on tourism, catering and attractions. Around 2008, Budapest delivered an increasing growth rate due to the development of its ruin bars. Many incoming tourists who spent a vacation here at the age of 18 come back with their children.

BBJ Which part of the industry has been hit hardest by the pandemic?

TF: This is very hard to answer. The whole industry has been hit in general, almost all parts of it. I would instead separate Budapest from the rest of the country. Budapest was the primary victim, and its situation is expected to remain steady until the recovery of air traffic and the end of lockdowns. Some 90% of the “fine dining sector” targets foreign clients. It was affected more seriously than smaller peers focusing on local customers, for example. The same applies to hotels in Budapest and at countryside. I encourage model change, but meanwhile, I remain skeptical. Hungarian guests will hardly replace foreigners in the long run. Those serving only HORECA  [hotel, restaurant, and café] clients went bankrupt. Those who own a more diversified product and client portfolio could survive.

BBJ: Who is open, and who will open later?

TF: Generally, everybody is open now. Hotels, and restaurants too. In fact, hotels have never been closed; they simply did not have guests. Both small hotels and five-star establishments are open, the latter welcoming mainly business visitors. Last summer, Budapest generated some 25-30% occupancy rate due to some business trip and car-based visitors from nearby countries. That ended in September. Now, it has a single-digit occupancy rate of around 8-9%, on average. We expect it to climb to 30% this summer, reaching 50-60% this fall, thanks to COVID certificates. The countryside could perform even better.

BBJ: What do you think about the level of government support?

TF: We had various consultations with the government. I would say that I would have invested more in people, especially because Budapest is performing very well in terms of booking.com ratings, mainly due to its highly experienced, high-quality professionals.  Do not forget that this is not just a financial question but a motivational one as well. Overall, the most important and effective government grants in Hungary were the wage subsidies. This is a very labor-intensive sector and very underfinanced at the same time. It was easy to pull people out of the market during the pandemic. Our partners must comply with HCCP [hazard analysis and critical control points] requirements, stockpiling, re-hiring, workforce training, plus an additional risk on guest numbers. Since re-opening is very expensive, we submitted another suggestion to the government about a re-opening grant, but we failed. Despite all the difficulties, most of our members survived. I would not predict future bankruptcies, but I am sure many of us overestimate the rate. We will not have as much as many expect.

BBJ: How is re-hiring going on? Are there any shortages in professions?

TF: Chefs and housemaids are almost impossible to find. Many professionals migrated into other sectors, where they are better paid, have more stability, and without night shifts and weekends or holiday season work. However, they are uncertain and wait due to the instability in the tourism sector. The whole industry is characterized by anxiety.

BBJ: Are there any steps to minimize the risk exposure of the sector?

TF: Travel is the most risk-sensitive industry for various reasons. In the case of a financial crisis, the first thing people will hold back on is leisure. Secondly, natural disasters can have a global effect. Remember when Eyjafjallajökull, a small volcano in Iceland, erupted in 2010, causing enormous disruption to air travel? We cannot prepare for these events. Banks usually put travel and tourism in the riskiest categories in terms of investment due to their volatility. I would not expect any considerable change in this.

BBJ: Are there any measures that can help, such as diversification, portfolio expansion, or reconstruction?

TF: Automation will probably help the most as it can replace the most critical human factor; however, I do not prefer this. Travel is about people and personal contacts. But I see no other solution. In Western Europe, there are no hotel receptions; you enter the building using a code and an online check-in, with an emergency phone number in case you really need it. The human workforce is scarce and expensive there too. In Hungary, we still operate with a 24-hour reception, but maybe not for that much longer. In restaurants, high-tech cooking machines will likely be able to prepare food, with relatively little human intervention. This will not be fine dining, of course, but it will be OK in general. Robotics is also a solution. Certain parts of hotels can be cleaned with robots, for instance, except rooms, and we have many rooms; this will always be a problem. But restructuring and specialization are a mainstream trend.

BBJ: What about sustainability in the sector?

TF: It is there, but the process is slow. Trends with well-defined economic benefits such as keeping bed linen and bathroom towels in the room for two or three days will be more popular, even in five-star accommodation. The other part involves new investments and newly built establishments where environmentally-conscious technologies and innovations such as heat pumps and solar panels will be incorporated to reduce carbon footprints, although their rate of return is still questionable. Train and short-distance car trips will also surge in popularity, while catering is likely to consolidate in number. Finally, the event industry will likely go hybrid, and trips will fall in number, adding to green consciousness.

BBJ: How is the legal environment for the industry?

TF: No one likes red tape, but Hungary is still quite OK in this. The Hungarian authorities are much more service-oriented compared to many other European peers. In general, this is good, and it is important as it is a time-consuming issue. And tendering in Hungary is also very active. Many tenders are available, which can indirectly affect the labor market.

BBJ: When can we expect a return to profit?

TF: Last year, we predicted growth from September based on increasing trend figures. Our master plan collapsed due to the lockdown. This spring looks much better, but honestly, I expect we will recover turnover only from 2023. The operating profit is another question since raw materials and labor costs have seen double-digit increases recently. To match the 2019 results, we should realize considerably higher income figures, which will take years. To sum up, I would augur profits perhaps by 2025.

GM Case Study: Tamás Fazekas, General Manager, Anantara New York Palace Budapest Hotel

We have launched many online applications through Stayapp, which allows guests to order services or make specific inquiries more easily and quickly. Requests and questions are routed directly to reception; they can chat in real-time with our team, who consult with the appropriate in-house departments. We have appointed a hotel health and safety manager and implemented new standards, including advanced digital services, upgraded cleaning and sanitizing protocols, tailored F&B services, personal safety equipment, water purifying and air quality protocols, and an ionizing air cleaning machine. Furthermore, we have implemented the concept of hybrid meetings with our AV in-house technical company.

This year, we plan to proceed with a soft refurbishment that includes a new lobby concept with F&B services, an additional restaurant, renovated rooms with a fresh interior design, beds and mattresses, a new fitness area, and a renovated spa. Moreover, we are re-evaluating the terms and conditions for the prices, contracting, and cancellation policies, showing a certain flexibility.

Currently, we are receiving an increase in inquiries for Q4 2021 and Q1 2022. There is also demand for Christmas parties from local Hungarian partners. Furthermore, the movie industry still sees Budapest as a popular destination for film shoots. We are receiving many inquiries from film crews, and during the lockdown, we also hosted film guests in our rooms and suites. We found a new niche market for our hotel during the pandemic because a lot of sports events have relocated to Budapest and, because we are close to some of the newest stadiums, we are also working with sports associations. Due to the pandemic, we have considered giving the exclusivity of several floors for sport team groups living in a health and safety “bubble.” Some of the cruise lines have already signaled their interest for 2022.

GM Case Study: Arne Klehn, Multi-property GM for Marriott Budapest

In the spaces where associates work “behind the scenes,” we increase the frequency of cleaning and focus on high-touch areas like associate entrances, locker rooms, laundry rooms, and staff offices. Mobile check-in/out, service requests, and chat can also be used for room service. Other features, including Mobile Key and Mobile Dining, are available, which increases touchless experiences for our guests.

As we see that the leisure segment will recover first within the coming months, we have put various attractive leisure packages on our shelves, including offers for couples, families, and solo travelers. Last year, we opened what had previously been our Executive Lounge as the Liz and Chain Sky Lounge roof bar to welcome locals on the ninth floor. Here, you can admire iconic views of Buda and, with a cold drink in hand, experience the very magical feeling of Budapest. Our Big Dog food truck will be introduced shortly and circulate in the city, providing street food specialties. In partnership with our AV partner Special Effects, we have developed an innovative solution called Extended Reality for online and hybrid meetings.

Hygiene standards and protocols remain our top priority. Throughout the pandemic, we focused on the retention and development of our associates to continue providing exceptional experiences for our guests. The year changed almost everything, but we continue to take care of our guests and each other. We welcome all of our guests to a fully renovated hotel; we are here to stay.

2021 has developed as a transition year, with borders opening slowly. We certainly expect greater demand for 2022, with twice the room nights in the pipeline compared to this year. We count on leisure tours returning with major cruise operations next year, as well as a variety of city-wide events that will further strengthen awareness of the destination.

GM Case Study: Stephan Interthal, General Manager, Kempinski Hotel Corvinus Budapest

Our head office reacted very fast to the pandemic and introduced new policies adapted to the situation from the very beginning. One good example is the Kempinski White Glove Services, covering all areas of our luxury hotels.

At Kempinski Hotel Corvinus Budapest, guests may ask for different sports equipment, like yoga mats, hand weights, aerobic balls, and resistance bands, for innovative in-room workout solutions. Until now, the spa operated by appointment only. On request, we can privatize it or an entire guest floor for a group, creating a small “bubble.” We still offer home delivery and takeaway service from our ÉS Bisztró, as we do from our associated restaurant Nobu in the hotel.

Last year, we introduced our Home Office in Style package for guests looking for private office space, and it is still popular. We offer streamed and hybrid meeting facilities and virtual team building, e.g., online cooking or wine/beer/whisky/gin tastings, where the ingredients/drinks are boxed and delivered to the participants in advance.

We took advantage of the very slow period during 2020 to complete the comprehensive room and suite refurbishment project that started in 2017, with the redesign of our Presidential Suite and the Corvinus Art Suites Collection on floors eight and nine.

Now, 16 months into the pandemic, we have learned that fast changes and on-and-off restrictions are the only constant dimension in our life. Regarding the outlook, we are optimistic. We will have to stay flexible as we need to adapt to changed conditions almost weekly. We see a glimpse of hope as border restrictions are easing, allowing people to travel, and we have increasing numbers of requests, albeit at a slow pace. A prediction for the fall/winter from 2021 to 2022 is difficult, and without being pessimistic, we are erring on the side of caution when it comes to planning.

GM Case Study: Balázs Kovács, CEO, Danubius Hotels

It is vital to gain travelers’ confidence under the current, changed market conditions. Hygiene plays a significant role in this and creating the conditions for safe travel, which is why we created our Safe Stay protocol. In addition to increased hygiene rules, non-contact services have come to the fore, both in guest information and hospitality. Travelers have notably become more cautious, so we do everything we can to enhance their sense of security.

While in the winter we offered hotel office (RoomOffice) and “home catering” (FoodPack) services, we are currently tailoring our offers to satisfy the desire to travel. Our goal is to offer solutions for those arriving in the capital for leisure purposes to gather the travel experience desired and also for business guests, where there is a definite need for personal meetings. To achieve this, Danubius Hotels now offers flexible conditions never seen before, hybrid technology, and convenient and safe on-site services.

Moving forward, we see a double trend: domestic demand in the countryside hotels will undoubtedly be very strong; however, the capital is still relatively weak. To get something started, we also need international guests, business travelers, and major events. This requires uniform and transparent regulations.

European tourism may be cautious, but we expect a domestic start around July-August. Even if there is an upswing over the summer, the recovery in the capital will be a much longer process, involving many difficulties due to its exposure to the pandemic. Overseas, Asian travelers and a large number of conferences may arrive in larger volumes next year, but the 2021 tourism “season” is likely to pass without them.

GM Case Study: Péter Mácsai, Cluster Manager, Ensana Hotels Hungary

As Europe’s largest operator of health spas, we have developed new products such as Wellness Relief, Immunity Booster, and Respiratory packages, which deal with stress and post-COVID symptoms after the pandemic and the home office/quarantine period.

Contactless solutions have been introduced to our hotel operations, such as QR code food and beverage menus, an electronic service guide instead of a printed one, and invoices sent by e-mail when checking out.

 Our hotel operations are in full compliance with the current public health regulations, the hotel staff is service-oriented, guests can expect flexible booking conditions in parallel with market conditions, and our housekeeping staff pays maximum attention to cleanliness and hygiene. We hope that after the pandemic, our full range of services will remain available and bookable. Our technicians and sales professionals are also well prepared for online and hybrid events. Given our current occupancy forecasts for several months in advance, corporate partners can expect a high willingness on the hotel side to agree on LRA (last room available) conditions upon signing the yearly corporate contracts!

 We expect the domestic corporate market to start in the short term, although with a slow growth rate. Hotels will need to wait several more months for international market bookings. According to our calculations, in the 2nd quarter of 2022, there will be a more noticeable recovery in this area. Online solutions mastered during the home office period will certainly reduce corporate travel needs, which is also not supported by the economic crisis in some industries caused by the pandemic. In short, we expect a slow recovery of up to several years for our corporate businesses.

This article was first published in the Budapest Business Journal print issue of July 2, 2021.