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Five-star hotels: uplifting rollercoaster

The Hungarian hospitality and tourist business survived the grounding of national airline Malév in February and shows promising signs of new life after years of decline; however, the path of growth is still shaky and far from smooth. Krisztián Kummer

The collapse of Hungarian national carrier Malév in February set alarm bells ringing in hotels in Budapest and beyond. The airline was responsible for some 40% of the near nine million passengers using Liszt Ferenc Airport in Budapest last year. However, months after the grounding, hotel owners can stop worrying, according to the latest available data from the Hungarian Statistics Office (KSH). 

Foreign guests spent 1.064 million nights in public accommodation establishments, an 8.8% year-on-year increase in number and an 11% year-on-year increase in nights. However, the EUR/HUF exchange rate was 294 in May 2012, HUF 27 (10%) weaker than a year earlier, which can partly explain tourists’ sudden interest in the country. Foreigners accounted for 60% and 75% of tourism nights and accommodation fees, respectively. There was a year-on-year increase in the number of nights spent by guests from all the major source markets except for the United Kingdom. Arrivals from Germany rose again and an especially dynamic increase was seen in arrivals from Austria, Italy and Russia. In hotels accounting for a considerable part of international arrivals – except for one- and two-star units – all categories saw a significant increase. 

However, budget airlines jumping in to fill the gap left by Malév have brought about a significant change in the composition of visitors to favor low-budget tourists: in the case of five-star hotels, the number of foreign guests dropped by 4%, while tourism nights increased only by 0.9% in May. 
In the observed period, room occupancy in hotels was 48% on average; within this, the occupancy rate was 71% in five-star units. Also, average room rates climbed back to levels not seen in years. After a slump in room rates in 2008 and 2009, the average rate in five-star hotels increased to HUF 38,395 in May from HUF 35,077 a year earlier, surpassing the 2008 level of HUF 37,641. 
However, there are still signs that the Hungarian hotel business is not performing as well as its regional peers. Occupancy rates and revenue per available room (REVPAR) in Hungarian hotels lagged behind those in Austria and the Czech Republic in the first quarter of the year, the Hungarian Hotel and Restaurant Association said. Based on data compiled by STR Global, occupancy at Hungarian hotels during the period was 44%, below the 55.6% rate in Austria and the 49.4% in Czech Republic. REVPAR in Hungary was just €24.3, compared to €50.3 in Austria and €31.9 in the Czech Republic.


Beyond the traditional target countries of Europe and North American, hotel advertising campaigns now try to lure new visitors from regions previously not targeted. “During challenging economic times, most businesses will focus on new industries or markets to supplement any decline due to economic circumstances. We are no different and our market portfolio has diversified and we are welcoming guests from ‘new markets’ including Asia, Latin America and India,” said Yves Giacometti, general manager at Four Seasons Hotel Gresham Palace Budapest. 

More and more tourists arrive in Budapest from the Middle East. Visitors from Kuwait, Saudi Arabia and the UAE spend five times more in a hotel than those arriving from Western Europe, according to the experiences of the five-star Buddha-Bar Klotild Palace. That the importance of the Arab world is growing to previously unknown levels was marked by the fact that Hungarian Prime Minister Viktor Orbán joined Jordanian investors at the opening of the hotel in June. “Jordan is a very important partner for Hungary in the Middle East,” Orbán said, adding that opening to the Arab world is crucial for Hungary. 
Visitors from the Arab world might spend more money, but they have different expectations as well. It is important for them to have a prayer rug in the room, and possibly an arrow pointing toward Mecca. Deeply religious guests will sometimes ask for the removal of statues as well. At the Buddha Bar hotel, Muslim food is served on request, as the chef is Syrian, and is familiar with Arab customs and the language.


From July 1 2012, hotels may only use the Hotelstars classification system to indicate the level of services they provide, replacing the earlier system of stars. Joining the system is voluntary, but hotels not wanting to join are not allowed to use stars acquired through other classification systems. 
The Hotelstars classification system was also made a national trademark under an agreement signed by the Hungarian Hotel Association and Ministry for National Economy in June. The Hotelstars classification criteria are transparent and can be easily understood by guests, said State Secretary Kristóf Szatmáry, who signed the agreement on behalf of the Government. 
According to Hungarian Hotel and Restaurant Association chair Andrea Kopócsy, some 18,000 hotels in 11 countries use the Hotelstars system at present, but it is continuously expanding. In Hungary, 380 hotels have registered for classification and 225 have already been classified, she added.


Rural hotels expect an increase in occupancy, while five-star establishments in the capital would rather see an increase in prices according to a survey by industry analyst Magyar Hotel Monitor. But sectors of Hungarian hotels are just about cautiously optimistic, expecting fluctuating processes in H2, both in terms of achievable prices and occupancy. For wellness hotels, the unfavorable state of stagnation is expected to remain throughout the rest of the year. Spa hotels with medical treatments are expected to be able to improve their occupancy rates, and boutique/fashion hotels will continue to follow favorable trends, according to the analysis. 
But in the longer-term, the future of the industry depends on foreign demand for Hungary as a tourist destination and favorable changes in air connection capacity, said Kempinski Hotel Corvinus Budapest’s sales and marketing director, János Parti. “We believe that Hungarian tourism operators will cooperate more efficiently in the future, making Budapest more and more attractive to visitors looking for a higher level of services too,” Parti added.