At the end of an excellent 2015 The Budapest Times sat down with Budapest Airport Zrt. chief commercial officer Kam Jandu to chat about the background of the success story and the perspectives of Budapest Airport.
You have been here for almost six years now and the low point was the Malév crash in 2012. But since then you have been constantly building up the airport performance. It almost feels like there is one new airline or a higher frequency of flights every week. Is it luck or hard work?
Of course, there is always hard work behind it. Generally the airline business operates more or less one or one and a half years in advance. We´re already having talks now with airlines about 2017. So 2016 is more or less done but to get that commitment we started the agenda in 2014. Airlines, especially the more traditional legacy ones, need to plan so far ahead because they have to look at the whole network situation. The low-cost ones are a little bit more dynamic. They sometimes have a lot more capacity and more aircraft but they base decisions on price and opportunity, so we have a slightly different relationship.
But is it a correct impression that after the Malév crash things became a bit slow, and now they are getting faster again.
No, not necessarily, although this year is certainly the most successful since Malév, but if we look back to the last full year of Malév, 2011, we had 8.9 million passengers. And already in 2012, keeping in mind that Malév collapsed in the February, we still managed to hit 8.2 million. So we were not so far off and we had no national airline. And that was the result of hard work. Immediately when Malév was collapsing we were on the phone to everybody and visiting people. We spoke to Lufthansa and Air Berlin about the Berlin route saying “Listen, you haven´t been on this route for a while, can you please reactivate it as there is no competition now.” We did the same with Air France, KLM, British Airways, everybody. Ryanair were already planning five routes anyways, but then decided to launch 30; they were just putting in capacity to gain market dominance, so we had a strong recovery. In 2012 it was great for passengers because the prices were cheap on many destinations; there was intense competition in the low-cost area especially. This dogfight over low prices went on for a while but luckily consolidated in 2013 and now it is very stable with most airlines co-existing comfortably.
So they jumped into the vacuum quickly and somehow you could reach the pre-Malév level. But then you started to build up, getting in new airlines, increasing the frequency for established airlines. What is their motivation to come to Budapest?
As mentioned, the traditional airlines were not able to react as quickly but in 2014 and 2015 we were able to convince them to gradually increase capacity by spending a lot of time with them, developing the relationships. The macroeconomics helped as well. Fuel prices started to drop and so airlines were a little bit more receptive to taking risks. This persuaded a lot of them to take a look, particularly long-haul airlines that have started routes this year, so we had Air Transat coming in from Canada, Air China from Beijing and perhaps most significantly we had Emirates start last year. So, a combination of better economic conditions such as lower fuel prices making them more profitable, plus our knocking on their doors, going to see them every few months and telling them what’s great about Budapest is a winning formula.
So the economics create the possibility but then it’s up to you and other airports to push the decision makers to say “Yes, we want Budapest”.
When airlines say, “We have one aircraft, we have to allocate it for 2017”, my team and I tell them, “You need to fly to Budapest, and this is why”. The airlines are saying, “Yeah, we heard of Budapest, we heard it’s much more relevant these days, we heard the economy is improving”. We heard for example in the case of Emirates that they wanted to tap into the river cruise business because it’s getting big and they want to bring more Asians and Australians, via Dubai, to take these cruises. And it’s the same for Canada. They said: “OK, we knew there is a sizeable demand between Canada and Budapest but we didn’t realise how big this river cruise business is.” About three years ago there were about 80,000 river cruise passengers per year, now it´s nearly 200,000.
And there´s a straight conjunction between the river cruises and the increased passenger numbers at the airport?
There has started to be. We´re making airlines differentiate between Budapest and Vienna or other destinations along the Danube. Of course, the river also flows in Vienna but the most beautiful city along the river, without question, is Budapest. The passengers fly in to, say, Amsterdam, cruise down to Budapest and fly back, or vice-versa. And this business is growing with Budapest now becoming the largest embarkation and disembarkation point on the whole river. The profile of these passengers is what we call premium dollar. They generally have money to spend, and this is attractive for airlines.
What are the other arguments for Budapest, next to the economic situation in general and the cruises?
Budapest, or Hungary in general, is the gateway to Eastern Europe. It has the advantage of being a full EU member, NATO member and part of Schengen. There are also several countries bordering Hungary, and especially to the east and south Budapest presents the closest and most attractive airport for them to choose. There is also the opportunity for investment which Hungary is showcasing in most foreign ministerial official visits. As for markets, the Chinese market is growing and we´re frantically trying to get a Korean airline to operate because many Korean businesses are operating here. Equally, we´re trying to work on the Japanese market. We spend a lot of time trying to get airlines operating from Seoul, Tokyo or Bangkok and we believe we have a lot more tools in our toolbox now than we used to have.
How do your airport charges compare to the competition?
Our tariff manual is on our website because the concept of airport pricing must be transparent and noe discriminatory. Every airline that is considering or actually operating a flight to Budapest can download it, have a look how much it costs, and make their own calculation. In support we have an incentive program that grants discounts if it’s a new route, for example. The first year they get a 100% discount from landing fees but it continues on a reduced discount basis in years two and three These types of incentives make it interesting for airlines. On top of that we have a suite of marketing programs which are designed to provide marketing actions to both successfully launch a route but also help sustain it. So if it’s for example a flight from Beijing, which gives us a certain amount of income per year on the number of passengers, we believe that we should invest a percentage of that back in the first year to promote the market. This is attractive as not many airports do this. They rely on the airline to fill out their capacity which doesn´t always work, so the airline flies there one season and then disappears. So we spend a lot on marketing and this has been recognised by the numerous best marketing accolades the Budapest Airport team has won from airlines.
You think more long-term, so that airlines are more willing to stay?
They do stay. The airline industry is no different from other businesses. Any business has a core home base. In the case of Air China their base is in Beijing. So a lot of their financial strength is in Beijing. They rarely replicate that amount of investment in a small market like Hungary. So this is why they are relying on a party like us. We know the market better than most, which is why we support their newly set up local team with joint actions. We’ve been here for 65 years, so we know who the main travel agents are, but perhaps most useful of all we know the profile of the passengers because we carry out several thousand surveys each year. So this is the extra value data we can provide to an airline, which they do not have themselves.
And that is not so common among airports?
No, we certainly seem to invest more in research than many airports and this is appreciated. We´re much more engaged and recognised and this seems to be a constant part of the feedback airlines provide. For example, within the airline community there´s one conference where all the decision makers who are planning routes for one or two years ahead, sit there in something similar to a speed-dating format. Every airport has a window of five or 10 minutes with them to convince them to fly to their airport These conferences are the right forums but outside of these conferences we invest a lot of time developing relationships by making personal visits to them and the results we see now are part of what we feel is a unique style of marketing to airlines and being innovative.
This seems like a very interesting situation. In general it is very competitive between the smaller airports but still you are quite alone with that program. Why? Is it connected to people working here?
I think so, it is about behaviour, attitudes and having the right leaderhsip. Going back to when I joined the company, the CEO Jost Lammers expressed great support in helping us create a winning marketing mentality to underpin the huge capital investment in hardware being generated. The task was to help fill the wonderful new SkyCourt terminal with more airlines and passengers, and that remains a constant to this day. It is not for me to say that we have the magic touch but the results are speaking for themselves and this comes after many people have put in a lot of hours. By doing something different from other airports we´re generating results. Every year the airline routes conferences which I mentioned hold awards ceremonies for the best marketing team, and we went from nowhere to winning it twice out of 150 European airports in our category. Other airports are trying to emulate us now as they face challenges of stagnation or even home airline vulnerability so they finally need to invest more in marketing. When we talk to an airline with capacity to allocate, they don’t really mind whether they fly to Budapest, Brussels or Prague, as the market is more or less the same for passenger numbers. So then it’s up to each of the competing airports to say, “Fly here”. In our case this means we share the economic risk with you, do a lot of marketing for you. We believe we have a great airport infrastructure, with the SkyCourt for example, but behind all this the destination is fundamental and Budapest right now is in focus, as acknowledged by many experienced travel writers.
And what about the bad press in the world media about Hungary? Does that influence your partners when you speak with airlines?
It does come up sometimes but everything must be kept in perspective. During the migration crisis for example, nobody said we´re not going to fly to Budapest but questions were coming from existing airlines. Our task is to provide assurance of the reality and we did this by simply advising: one, don’t believe everything you read; two, it´s a very difficult situation for a country that is a European border and look at the rest of Europe, they are not aligned. As a foreigner living here happily for six years now, I have to say it´s a very strong market. If everything was that bad, tourism numbers wouldn´t be the fastest growing in the region, therefore I think we have enough positive arguments to overcome these kind of issues.
What was the biggest success of the last few months?
It´s hard to pick but I would say Emirates launching their flight finally. They started last year after we’d been working with them for five years. In that time, many BUD representatives kept going to Dubai including Jost Lammers and I alongside our airline development heads. We went to every conference each year too and said: “Please, please!” To be fair to Emirates they said they would come to Budapest one day but they were just waiting for more and more capacity to come in, because their whole strategy is to make Dubai the biggest international hub in the world, something which they have achieved finally.
For Budapest it was a huge milestone to get Emirates. How did you finally convince them? Are they happy here now?
They’re happy. For them the issue was, they didn´t have enough aircraft. For them Budapest was always in the top five, they believed in it but they invested in Austria. They wanted to get more capacity into Vienna but Vienna regulated it and so Emirates couldn´t get more frequency, which was good for us. We used that as an argument. “Why are you spending so much time there, because Austrian Airlines also flies to Dubai, you have a competitor there? We know that many Hungarians are driving to Vienna, taking your service or the Austrian service.” We used this kind of argument, and finally when it became very clear they were going to be restricted through this regulation in Vienna, that helped us persuade them to bring their capacity to Budapest. And with that came all the other tools from our toolbox. Emirates had their one-year anniversary in October and they must be satisfied because they upgraded their aircraft allocated here with 25% more space for passengers by switching from an Airbus A330 to a Boeing 777, which also includes a first-class cabin for the first time. Another key influencer was the river cruise traffic. Emirates have big capacity between Australia and Dubai, and we know that some river cruise companies such as Viking are very strong in Australia. A lot of the people arriving now via Dubai to Budapest are Australians and it continues to grow.
So the Australians and river cruises helped a bit to make Emirates’ decision happen?
It was a small factor in the decision but it’s a big factor in increasing the capacity now. But besides that we have other great news too partially related to the growth of river cruises. British Airways after many, many years of negotiation has added one more daily flight to Heathrow to take their daily total to four. For an airline like BA who rarely use an extremely valuable Heathrow slot to operate within Europe versus a long-haul destination, this is an endorsement of the market opportunity we have helped them see.
What are your next targets?
There are two airlines in Korea we´re spending a lot of time with: Korean Airlines and Asiana. Both of them are challenges. Asiana is a Star Alliance member and Star Alliance has a big hub in Vienna while Korean have a hub in Prague. We have to have a really good compelling argument and we´ve got good support with the Hungarian ambassador in Seoul. He understands that there is a lot of Korean investment here but it´s still a slow burn and something which may materialise in 2-3 years. In addition Tokyo has some demand and the US is a gap now. When Malév operated we had American Airlines and Delta Airlines operating for many years on the New York route Both of them had financial difficulties because of different issues and they went into what is called Chapter 11 bankruptcy protection. However, now the economy is improving and fuel prices are much lower than in recent memory so there is a chance for fresh discussions. Budapest-New York is the single largest unserved direct market in Europe. All of the US airlines we are discussing with understand this.
But there would be potential for that route?
There is. I looked at the analysis in 2014 and the market size between Budapest and New York was bigger than between Budapest and Munich for example. If you imagine the traffic flow between Munich and New York, there is a lot of transfer traffic. It´s not point-to-point-traffic while on the route Budapest-New York it’s only people going directly from Budapest to New York making the direct market size even bigger.
So if you can prove that there’s a certain demand by passengers who want to travel the Budapest-New York route, isn’t that convincing enough to deal Budapest as a destination?
That is correct. In terms of the passenger demand they all think that Budapest is the right opportunity. The challenge we have is the range: it’s just slightly longer to come to Budapest in comparison to for example Munich or maybe Copenhagen. This puts pressure on the type of aircraft. The optimal aircraft is a Boeing 777 or 787 and when they all have these aircraft it will be much more economical, so they’re waiting to have their fleets upgraded. For such a long sector, you need a manageable cost base and a large, fuel-efficient aircraft to make the economics work.
So they observe and calculate their figures but sooner or later New York-Budapest will happen?
It will happen. None of them has said, no, that’s out of the question. It’s just when they get their optimal aircraft.
Well, that would be a milestone in the reputation of Budapest Airport.
Absolutely because, you know, not having a direct connection to the US is being perceived as not really … fantastic. And as I mentioned, the river cruise traffic is growing all the time, and the biggest passenger grouping for the cruises are Americans. So they’re getting here, most of them via London, Frankfurt, Munich, Amsterdam or Paris. They use other airlines that fly in Europe to connect. It is making our case stronger every time we meet with them. We can say that last year there were, let’s say, 120,000 river cruise passengers and now it’s 200,000. So in spite of not having a direct connection, the market is growing.
And which airline could serve that destination?
You’ve got three main US airlines: American, United and Delta. So it has got to be one of those. We have good relationships with all of them and they say, “Yes, we understand the market demand is there”, and all of them have got the same challenge, which is mainly that they haven’t got the optimal aircraft at the moment. As an outside chance, there could be a possibility with the Middle Eastern airlines to fly Budapest-New York. It’s not out of the question but there are two barriers, one of which is whether US regulators will accept it. In theory there is an Open Skies agreement between the US and Europe, which allows European airlines to fly to the US and vice-versa. The Middle Eastern airlines are not European, so the US side is using this as an argument saying they can’t do that. A lot of Middle Eastern airlines actually want to do so, and for example Emirates are flying from Milan to New York – the US says it’s illegal but still they continue to let them fly. So there’s an ongoing legal debate. Until that legal question comes to a conclusion I doubt that Emirates will start any more of those connections.
Which regions are not covered?
Southern France is a gap, and that’s a huge geographic location. The market situation in France is very tricky because it is quite regulated, you could say. Air France, the biggest airline, is heavily invested in the southern part of France and aviation policy hasn’t been too receptive in encouraging low-cost airlines to fill network gaps. So we’re missing some key points, for example in Marseille or Toulouse where there is demand for two or three services per week. Also there are parts of Spain and there is Northern Ireland but they will come. Anywhere there’s people, a sizable community and some industry, that’s an opportunity. We talked to several airlines that are interested in Northern Ireland. The challenge there is again that the distance is quite long but we remain optimistic
Eastern Europe is quite covered, expect for the Balkan region, but you must have the right economics balanced to the demand: especially as low-cost airlines typically have far too much capacity in their 180-seat jets for such short destinations. Malév was able to operate that region reasonably successful but their aircraft typically had 60 seats or less, and that was easy to fill twice a week. But the low-cost model is relying on the bigger number of seats, which could be hard to fill completely.
Speaking of Malév, after it collapsed there were efforts to come up with a new national carrier. Do you still feel that there is a need for a national carrier or can Wizz Air fill that national gap, more or less? Would it be economically wise to invest in a national carrier?
I think the ship has sailed. Perhaps if one was launched within one week of the collapse there could have been a chance, however within two months there were several “vulture airlines”, to use that opportunistic metaphor, who are now some of the biggest customers who have captured the market most successfully. Eighty to 90% of the market has been picked up and is being operated very efficiently and successfully by other airlines. So based on that, I don’t think it is viable for any airline to operate as a national airline here and now. Some suggest that the de facto national airline Wizz Air has picked up most of Malév’s routes, for example the more lucrative point-to-point traffic to Western Europe. Overall, the market has changed, and for example the small regional routes to the Balkans were lost. So the point is, there are still some gaps that have been served by a national airline historically and can’t be served by low-cost, high-capacity replacement airlines such as Wizz Air. Of course, with considerable state financial support this may be possible and that may be achieved in future. For the moment we are continuing to work on the Balkans but we haven’t been able to close the gaps yet.
So you’re also making huge developments with Wizz Air because this must be their largest base here in Budapest.
Yes, this is their biggest base and we have been good business partners with them throughout their 11-year history. They will have 10 aircraft based here in Budapest from next April, some of which will have 230 seats instead of the 180 used in most of their fleet, and as they successfully listed part of the business on the London stock exchange this year they will continue to grow. This is great news for us as they have a good business model which continues to create new markets and deliver affordable fares to passengers, especially first-time flyers. In addition they lease a crew centre, hangar and a flight simulator indirectly at Budapest Airport, showing their commitment to the market.
How big is Wizz Air in comparison to the Malév share of business?
At the peak Malév had 40%. Wizz Air now has 29%.
But with a tendency to grow share?
Well no, it is more or less stable at that level and this is good for us. When Malev operated in summer of 2011 there were 33 airlines serving 88 destinations, and now there are 43 serving 94, which shows that the market and number of airlines have grown.. If you have just some big eggs in a basket, you’re vulnerable. We’ve had one bad experience already so the current ratio works for both us and Wizz Air