The last quarter of 2001 and the whole of 2002 were very challenging years for hotel operators around the world. Hungary and its capital were no exceptions. With the economic recession affecting corporate spending, the Iraqi war, the general fear of travelling by leisure tourists, a strong currency and growing competition are all factors which contribute to a seemingly gloomy scenario.

In the past five years, the supply of four and five star hotel rooms has grown dramatically, and with newcomers like the Four Seasons and the Boscolo Hotel at the New York Palace, the upscale hotel market of Budapest will face even more challenging times. Hoteliers recently entering the market, newcomers and existing properties are all targeting and fighting for the same market segments.

During the last five years, demand for 4 and 5 star rooms has grown annually at averages of 3% and 10% respectively. In order to cope with increasing supply, many properties often offer discount rates to attract more guests.

The fact that demand has not been able to sustain the same pace of growth as supply is evidenced by the constant annual decrease in room occupancy.
 

But if we compare Budapest to other international cities, could we say that the capital is in an over supply situation? If we look at some comparable international destinations in Europe, the answer to this question seems to be no.

At the end of the year 2002, with 8,185 upscale rooms, Budapest had about 5,500 rooms less than the ones available in Vienna and still 15% fewer 4 and 5 star hotel rooms than in Prague (offering 9,596 rooms). In Madrid, at the end of the same year, there were twice the numbers of rooms than in Budapest.

But what can tourism authorities and the private sector do in order to speed up the recovery of the seemingly depressed capital�s hotel market? Certainly, there is a need to develop new and more creative products in order to target new markets.

There is no doubt that the development of a new convention centre in the capital can certainly help to draw more large conferences to Budapest and attract high spending conference tourists. Mid-scale hotels, as well as budget hotels, can also benefit from the further development of MICE tourism (Meeting, Incentives, Conventions and Exhibition). Not everyone visiting a city for a specific event can afford to stay at upscale accommodations.

Furthermore, very few people have realised the importance of the last letter of the MICE acronym. The exhibition market is a segment which certainly remains underdeveloped. In this regard a city like Milan has done a tremendous job, and Hungexpo could learn a great deal from that city�s experience. Private-Public Partnership (PPP�s) has been the driving force behind the success of the Milan Fair Centre. Hotels of every category in Milan have enormously benefited from this development. It is not a surprise to me that in the city of my birth the average value per room in four and five-star hotels is the third highest in Europe, after Paris and London.

And what about the potential of Budapest�s spas? Are we really exploiting it? I believe that much more can be done. By simply improving the level of hygiene, extending opening hours and upgrading some of the existing historical spas and baths, Budapest could differentiate itself from other typical short break destinations like one of its main competitors, Prague. Hungary and the Czech Republic are in competition to attract spa-goers, but their capitals are not, because Prague does not possess similar assets.

I also fully agree that the beauty of Budapest during the Christmas holiday season should also be better exploited. The organisation of a more intense calendar of events during December, along with better street lighting and atmosphere, could help the city to draw more tourists during a month which is traditionally difficult for hoteliers. Cities like Paris, Vienna and London have fully capitalised on this opportunity, also thanks to the development of "high-street" shopping, a concept existing only on a very limited scale in Budapest. The city is not yet enough attractive for shopping tourists.

I would also add that a more intense calendar of internationally acclaimed sporting events and concerts, as well as cultural events (look at Prague in this regard), can also help to boost international as well as domestic tourism.

Target marketing in countries that traditionally spend a considerable amount of money on international travel (e.g. the US, Canada and Japan), and in fast growing markets like China�s, should be improved. In this regard, a more generous budget should be made available. However, I think it is crucial to stress that in order to succeed in attracting these faraway markets regional co-operation with neighbouring countries is essential. The creation of exciting packages, including more destinations, such as Vienna and Prague, is crucial for creating a product enticing enough for people who have to fly several hours to reach Central Europe.

For European visitors, the entrance of budget airlines on the Hungarian market can also help to boost the city�s tourism revenues. In a recent European survey on budget airlines performed by KPMG Travel, Leisure and Tourism Network, we found that tourists saving on their airfare using "no frills" airlines do not necessarily seek to save on hotels, restaurants and shopping.

More effective marketing, the development of new products and tourism related projects, collaboration with other international destinations in the region, as well cooperation between public and private sectors, are the paths to success not only for upscale Budapest hotels, but also for the entire Hungarian hospitality industry.

In conclusion, while in the short term it appears that the Budapest upscale hotel market is in an oversupply situation, in the mid term (three to five years) the existing and planned number of rooms in the capital might not be sufficient. The future could prove to be much brighter than it appears today.