Top Manager in Discussion:
Jo Gowie, director of hotel development, Mellow Mood Group
The Buddha-Bar Hotel Klotild Palace near the foot of the Elisabeth bridge in Pest is set to open in late summer.
While many in the market are complaining about oversupply in the upper end of the Budapest hotel market, Mellow Mood keeps trucking along, opening two new hotels last year and another two or three planned for this year.
Guest nights are up slightly but existing hotels are complaining of low rates. What is your strategy?
Our strategy is very simple: the hotels we are developing lately, last year and this year, are absolutely in top downtown locations. What you can see is that indeed, occupancy is rather flat (according to the 2010 survey released by the Central Statistical Office this month) but there is still a volume of people coming to Budapest. We are planning for two hotels to open in 2011, which are the La Prima Fashion Hotel Budapest with 80 rooms in the four-star segment, and the 102-room Buddha-Bar Hotel Klotild Palace which is our five-star “Lifestyle” hotel, on Ferenciek tere. The 70-room Avenue 83 Fashion Hotel is probably opening up in early 2012 and we also have a hotel project running in Vienna, which is the La Prima Fashion Hotel Vienna which is due toward the end of this year as well.
So it is a case of gaining market share?
If people have a wealth of choice of hotel rooms in the city and if you can offer a brand-new product in this difficult market at competitive conditions – a new, fashionable hotel in an absolutely top location – obviously people go for that. On top of that we are very strong in online distribution, with 70-75 per cent of our occupancy generated through online, e-channels and internet, which is a very high ratio. So the strategy is very simple: have a top-quality product that’s nice, fashionable and trendy in a top location with competitive rates. If people have a choice to book a room, obviously they prefer to stay downtown. There are a number of hotels where the product is less attractive at the same rate. There are a number of hotels which are equally attractive but are out of the city centre. For these hotels it is obviously very difficult to get a fair market share or a higher market share, even. And this is where we are more successful. That is basically the strategy and is resulting in good occupancy.
Alta Moda Fashion Hotel was a very unusual story, as it opened in spring but then the property was bought by the Central European University for its expansion downtown at a price we couldn’t refuse; that was actually a success story for us as it had very, very good occupancy at 80 per cent in 2010. It points to the strategy working. We don’t want to sound arrogant but we are comfortable, convinced that the La Prima Fashion Hotel in an absolute top location again, just off Váci utca, will work extremely well. We have 80 rooms. We have all the necessary facilities. There is a small spa and gym, there is a restaurant, there is a bar, an excellent location and parking is next to it in the Millennium parking garage. So these are key ingredients to guarantee success: a fashionable design in a perfect location.
And what of finance? Are the banks back, or at least friendlier?
The banks are not back, but the developments which are going on are a result of deals that had been made with financial institutions in the past and are still standing. It is sheerly impossible to find new financing at this moment, so we do not have any new projects to announce at this stage which have not been started yet, but the projects which are started are going on, capitalising on previous signed agreements with financial institutions.
It could be said that you have an aggressive strategy, starting off with hostels years ago, moving into the three- and then four-star market and now you will have a five-star offering in addition to opening your first hotel in Vienna. Are you making more admirers or enemies these days?
We are obviously not looking at making any enemies and neither are we seeking to be admired. We are looking at getting an increased market share and market position in Budapest and we are penetrating very humbly into the Viennese hotel market with a 50-room hotel. Yes, we moved from hostels and three-star hotels into the four-star market because we realised that the return on investment is better on a four-star hotel with a small footprint and a certain number of rooms. Having quite a big portfolio, you can capitalise on volume using the economy of scale principle.
Well, you seem to have a lot of confidence. What are your predictions for Budapest’s hotel market in 2011?
Again it is not about personal confidence or arrogance; it is about looking at signs and flags around you. I don’t think we can yet say that the market is recovering. Yes, we have seen a slight increase in occupancy in the last couple of months of 2010 but the unanswered question and maybe the unspoken question is, “Is this slightly increased occupancy the result of the market recovering or is it the result of increased visitors to Budapest because Budapest is unbelievably good value for the money?” In other words, are these extra people coming to Budapest because you get an absolute bargain on your hotel? And of course let’s also not forget that there are the cheap flights to Budapest. The question is that if Budapest was charging higher rates like we did two-and-a-half years ago, would the increased number of customers still exist? That is difficult to answer. I imagine that probably not. On the other hand you see that certain Western European economies are back on track. There is again an increase in corporate travelling and certain conference travelling happening again. That will mainly be capitalised upon by the five-star hotels, but if the five-star hotels can do better, then there is of course a positive spin-off to the rest of the market. But I won’t say at this stage that there are great signs of recovery.
Is Hungary’s EU Presidency providing a boost?
Is it providing an increase in business? That remains to be seen. I think it is regrettable to see that most events are taking place in Gödöllo and that we are not exposing the beautiful city of Budapest to all the European eyes who are looking on what is happening in Hungary with its Presidency. And let’s face it; Hungary unfortunately did not make itself very popular with other EU member states with what happened with the media law. So I am not sure at this stage if the EU Presidency will yield extra success for the hotel industry or not, it is too early to say that. And if it will give some extra business I think it is unfortunately only a handful of upper-market hotels, five-star hotels most likely, who will take a benefit away from that.
So it is still up to you to create your own success.
Well, one has to remain confident in the market at the end of the day. I still believe what I have been saying for years; this is a great city with a lot of assets. I’m not into politics. So for me, it doesn’t matter who is doing what in terms of politics, but we hope that tourism strategies and tourism budgets will be applied in the right manner. The increased city tax was an unpleasant surprise, but we hope that this can be streamlined at least with the same tax ratio for all the hotels in Budapest, because for the moment, for the customer it is very confusing. Despite that, I still believe in the efforts of this country and I hope that as the rest of the economy in Western Europe continues to recover, Hungary will get its fair share and the market will continue to grow. I think we have been through the worst. We can only go upwards again.