and Eastern Europe; Budapest Hotels Adjusting
Service Offerings to the Needs of this Emerging
Segment, the Budget Airline Passenger
|Budapest, 23 March, 2005
Low cost airlines have achieved and still face rapid growth: according to a new survey by the Travel, Leisure and Tourism Group of KPMG in Central and Eastern Europe, about 14% of Hungarians who plan to travel abroad in 2005 will use budget airlines, compared to 5% last year. “The market share of budget airlines is projected to reach 35 % in Hungary by 2010 (with 4 million passengers), from the current 15 %,” Andrea Sartori, partner and head of the KPMG TLT group in CEE said, revealing the findings. “Our research proved that budget airline passengers are not necessarily budget travelers and the money saved on air fares is often spent on other tourism services, such as hotels,” he added.
Hungarian air traffic has been recovering since the bad years of 2001-2002. In fact, in 2004 Ferihegy airport became the third busiest airport in Central Europe after Vienna and Prague, with 6.5 million passengers registered, a record number, which is more than a 28% increase compared to 2003. Budget airlines have contributed to this growth significantly by focusing on a new passenger segment. After only one and a half years of operation, the budget airlines flying to Budapest already account for over 15% of the total market share at Ferihegy airport, with 5 low cost airlines in the top ten at the airport, based on numbers of passengers.
The KPMG survey confirms that the appearance of the low cost airlines did create new traveler segments in Hungary. “About one quarter of leisure travelers and 8% of business travelers would not have traveled if there had been no such low fare opportunity”, Andrea Sartori said, quoting the findings of the survey.
While most travelers obviously choose low cost airlines for their low fare, 24% of respondents preferred the more flexible schedule of a low cost airline to other airlines and 9% found that only a low cost airline had service to the required destination. Some business travelers also mentioned that a growing number of their business partners get located close to the airport which low cost airlines use. Big companies, on the other hand, still tend to prefer traditional airlines: respondents mentioned that the top management of large companies expect high quality services (e.g. more flexibility in booking flights, business lounge, on-board catering, etc.) Furthermore, low cost airlines often use airports relatively far from major city centers.
Nevertheless, since both leisure and business travelers are very price-sensitive in Hungary, low cost passenger traffic is expected to further grow in the coming years. “We assume that the gap between the market share of Malév (currently about 49%) and other traditional carriers will narrow and by 2010 low cost carriers are expected to reach about 4 million passengers, which is a 35% market share,” Sartori said
It is also important to note that, contrary to common belief, low cost carriers actually grow the entire air passenger market, rather than “cannibalizing” form traditional airlines. Since the appearance of budget airlines, the frequency of weekly flights grew significantly while ticket prices fell, even for traditional airlines on certain routes.
According to Sartori, in a more and more competing air travel market the customer is only clear winner. The increasing competition forces Malév and all other traditional airlines to re-think their pricing strategies and business models. Due to market pressures, major international carriers have already started to transform their operations and either focus on the service-conscious passenger segments (e.g. British Airways and Lufthansa with premier services for their business class travelers; SAS introducing three classes of travel), or become more competitive by simplifying the product they offer (e.g. Aer Lingus eliminated business class and now targets budget travelers).
Among other factors, the improved accessibility of Hungary by air undoubtedly also contributed to a record number of visitors in 2004. Hotels in Hungary had an excellent performance in terms of international tourism arrivals and guest nights last year. Occupancy rates in 3, 4 and 5-star hotels increased by 4.6%, 6.2% and 9.8% respectively compared to 2003, while revenues also increased by almost 11% compared to 2003.
The KPMG survey demonstrated that Budapest hotels have indeed experienced the impact of low cost airlines: according to interviews performed with hotel executives
“The growing competition among airlines will increase the pressure on airport developments as well: both Ferihegy airport and the accessibility to the city centre will need to undergo major developments in order for Budapest to successfully face the challenges of a growing air travel market. Regional airports, which could offer their services at a lower fee, have a great potential to capitalize on this market opportunity,” Andrea Sartori commented.
Methodology of research study
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|Also See:||Budapest Upscale Hotel Rooms - Is It an Over Supply Situation? / Andrea Sartori / April 2003|
|Four Seasons Hotel Gresham Palace Budapest Opens After a $110-million Restoration / June 2004|