BBJ: How is the 2024 market shaping up for your members?

Tamás Flesch: We can be optimistic about the start of the year. From January onwards, tourist accommodation turnover has increased and could even break the 2019 record, barring any unexpected developments. We can say that the old order has essentially returned. Fortunately, Budapest’s popularity is undiminished, and it is still an attractive destination for foreigners. Domestic tourism is also thriving. Foreign guests account for 50% of the overnight stays and domestic guests for the other half. Many people choose to relax in Hungary’s most popular destinations. More quality accommodation is being built outside the capital, and once open, it is often close to full capacity, colleagues say. Profitability has also risen to acceptable levels thanks to price increases.

BBJ: What are the greatest challenges and opportunities for hospitality this year?

TF: The impact of high inflation is still felt, and labor shortages and staff turnover are a long-standing feature of the hospitality industry. As in all sectors, there is a general sense of economic uncertainty. This year, the rise in water and sewerage charges is a new phenomenon that is imposing a higher cost on hotels, with many having to pay three times more than before.

Inbound tourism is not yet at the same level as before the war, but tourists are returning. The Russians were important guests; they are a severe loss to rural tourism. Before the war, Israel was the third most important visitor country, but fortunately we are seeing them again in hotels.

It is unlikely that prices will be raised significantly, but it is worth aiming for prices around inflation. Hotels are still cheaper than in Western Europe, but we are slowly catching up, especially in the capital.

BBJ: What is the breakdown of your members between luxury hotels and those from the budget end of the scale?

TF: The current membership of the association is close to 650 members. Among them are 470 hotels with 40,000 hotel rooms. The membership represents roughly 70% of the domestic hotel capacity. Most members are from four-star hotels, representing 45%. They are followed by three-star hotels (30%) and five-star hotels (10%). Many five-star hotels have opened recently in the capital and the countryside, with around 2,000 guest rooms. Global brands are opening new hotels, which suggests a fascination with the city. We can also say that almost all of the well-known hotel chains are HH&RA members. To take advantage of five-star hotels, it is essential to attract flights from many countries, including overseas flights in addition to low-cost flights. We also need to develop shopping tourism.

BBJ: How are these various sectors affected differently by the challenges?

TF: The constant question is: “Who is in a more difficult position? Hotels in the countryside or business hotels in Budapest?” It is a little harder for the rural ones. Most wellness hotels in the countryside cannot cope with inflation, although, fortunately, Hungarian guests spend money through Szép-cards at their hotels. Those in the capital are in a slightly better position, but it would be good to increase the number of nights spent here, too. Instead of two or three days, we would like to see foreigners spend four or five days here. For Budapest hotels, time will tell whether a slightly higher price increase, even in euros, is feasible. If we look at the issue in international terms, it is clear that the domestic market has to compete with foreign markets. There is no other way. The first and most crucial step is to raise the quality of services.

BBJ: How do you expect the market to develop over the next few years?

TF: The number of accommodation establishments in Hungary is constantly increasing. The ratio is shifting towards premium accommodation, thanks to foreign capital inflows. Foreign investors seem to see hotel construction as a good business despite Budapest’s room and occupancy rates being lower than in other European cities.

One of the beauties of this industry is that hotel construction and operation is a fascinating reflection of broader societal changes. Hotels are no longer just hotels; they must become “experiences” shaped by a commitment to design, technology and sustainability.

BBJ: How do you expect trends like ESG and AI to change the hospitality market in Hungary?

TF: Regarding sustainability, we are not discussing an investment that pays off in the short term, but it is still worth it. We inevitably pay attention to optimizing energy use and rethinking waste management. It is worth paying attention to the regional sourcing of raw materials and the supply of filtered water. It is good to see that more hotels are developing their own water filtration equipment.

It’s also exciting that young people are increasingly interested in this topic. They are willing to pay more for accommodation in exchange for environmental awareness. If they know that part of the revenue will be spent on improvements in this direction, they will choose that accommodation despite the higher price. Interesting initiatives are being introduced, especially abroad. Vienna is at the forefront of sustainability, with many hotels offering discounts for environmentally friendly transport and innovative ways to renovate equipment. It is worth following these examples.

And artificial intelligence tools seem to have potential in many areas. To some extent, they can alleviate labor shortages and improve traveler satisfaction. AI can be used for simple and routine tasks, allowing colleagues to do what they do best. However, what AI certainly cannot do is deliver an authentic guest experience. Connecting with guests is what can make the hotel experience truly special.

BBJ: How could the government better support the hospitality sector?

TF: The purchase of Budapest Airport is a significant step. It will give us a chance to enter the international bloodstream. The government is spending a considerable amount of marketing money to sign up new airlines or increase the frequency of flights among airlines already bringing in visitors.

Properly regulating short-term housing rentals has been a central theme of the HH&RA for years. Hoteliers still have to comply with much stricter requirements, which means extra costs for the industry. It would be good if short-term rentals were also regulated by law.

Introducing a general service charge for basic services is also one of our organization’s lobbying points. Labor shortages hamper the operation of accommodation facilities, but a wage increase could change this. This extra resource would enable hoteliers to cover the increase in staff wages.

This article was first published in the Budapest Business Journal print issue of June 28, 2024.