Climbing to higher altitude

Ferenc Liszt International Airport is growing not only in terms of passenger and cargo volume, but also in terms of its own real estate. René Droese, who is responsible for its property management and development, gives an overview of all the new construction and further plans.

Let’s start with the airport hotel, a very topical issue.

We are very happy that we could finally launch this project. We laid the foundation stone near Terminal 2 at the beginning of September. The project has been ongoing since 2008, as part of the airport development planned back at that point. However, the economic crisis came and we had to take it off the list of our innovation projects, since the economic operation could not be guaranteed at that time, and therefore the risk could not be kept within a desirable limit. Afterwards, the bankruptcy of Malév followed in 2012, and the plans had to be stopped again. We had other things to worry about then, of course. Driven and secured by our very dynamically growing number of passengers, we are finally able to implement the project now.

Was there also perhaps a legal hurdle standing in the project’s way?

Yes, but together with our partner WING, the largest Hungarian real estate development company, we found a contract model that appropriately distributes the respective tasks of the project partners. It’s not a simple contract for buying a piece of land. It’s somewhat more complex and took time to complete. WING, as our partner, commissioned the Market construction company for the realisation of the hotel. We are planning a soft opening in December 2017.

So are you implementing the hotel project now with the concept from 2008?

No, of course we have completely repositioned the project. Originally, a larger hotel with 250 rooms and four stars was planned. However, the market has changed considerably since that time. We don’t have so many transfer passengers as in the time of Malév. Furthermore, the growing number of passengers who are coming to Budapest with low cost carriers are very sensitive to pricing. We also have a lot more companies based at our airport. About 13,000 people work there. These companies do need possibilities for spending a night at a reasonable price. Finally, we have a lot of companies with offices close to the airport, and of course the airlines themselves, who are looking for rooms for their crews and their passengers. And all that within walking distance of Terminal 2, if possible. We don’t want to compete with any of the five-star hotels in the city centre. We would never be able to do that. If someone would like to stay in the city and enjoy a view over the Danube, that person will pay for a room in the city, of course.

What is the new hotel going to offer?

A total of 145 rooms of moderate size, at a moderate price. It will also have a restaurant with breakfast, lunch and dinner. Conference rooms will be available for rent. One of the greatest advantages will be that the guests will be able to go from the hotel to the terminal on foot, on a covered walkway.

Considering the target group we already discussed, will 145 rooms be sufficient?

They will be sufficient in the beginning. We have conducted very precise market research, and 145 rooms will cover the demand pretty well. We estimate that this will be sufficient for the first years of operation, considering that the hotel also has to be economical. Our plans include the possibility of extending the hotel in the future. It’s also possible that later on we will build a second, completely separate hotel. We have enough potential construction areas.

Although the hotel will not be operated by your company, are you still worried about its economical operation?

We have invested a lot in the infrastructure of the land and we are providing all the utilities, for which we also spent a lot of money. The same is true for the road connection. We also have to create a couple of extra parking spaces. All these investments have to bring a return to us, of course. Furthermore, the hotel should have a close connection with our daily airport business, and not only exist separately next to us. It should become a part of daily terminal operation. There will be some terminal guests who would like to go to the hotel to have a meal. In addition, passengers will be able to check in directly to the hotel. There will be numerous other close collaborations between the terminal and the hotel. This is why it’s in our interest to find a solid hotel partner with a good business plan, and to be able to operate the hotel in a good and sustainable way.

Which company will be operating the hotel?

ibis Styles, which is a newly positioned brand belonging to the AccorHotels group. Accor is the largest hotel operator worldwide, having, among other things, the most experience with running airport hotels. Many companies interested in operating the hotel applied to our tender. First, we looked around the hotel market and considered what would be the best product for the airport. Then we defined our requirements, such as how many rooms, what price category, and so on. Then we invited all the large hotel groups to tender. We received some good offers and negotiated intensively. Finally, we decided on the offer of Accor, in agreement with our partner WING, based on Accor’s professional approach towards the project and their existing know-how. Accor operates hundreds of hotels at airports. This was a very important point for us. Of course, the business side of the agreement was also important. All in all, the complete package offered by Accor earned the most points with us. Accor is a very professional partner, and has been active in Hungary for more than two decades. So there are three very good, stable and very solid partners here: WING, Accor and Budapest Airport. For that reason, we have no doubts that our project is going to be a success story. At the same time, a long-existing shortcoming will finally be eradicated. We are today one of the very few airports of this size that does not have an airport hotel. The airports in Prague and Vienna even have two and three hotels. This is why we are especially happy that we are finally making it there.

Why in agreement with WING and not the airport itself?

WING signed the contract with Accor for the ibis Styles project and not our company. We handed over the piece of land to WING, where they will finance, build and operate the hotel, together with the chosen partners.

What else is going to change, given the presence of an airport hotel, apart from the obvious things?

In each quarter, we are rated in the airport service quality (ASQ) survey. This is an independent rating system for airports, where passengers evaluate categories, such as quality and services. We have not been able to offer anything in terms of an airport hotel to our passengers yet. We hope that thanks to the existence of the new hotel, our passengers are going to give us a higher score in the services category.

What other effects will the hotel have?

We know from our negotiations with potential new airlines that having a hotel at the airport and providing an opportunity to spend a night for the crews is considered as an extra point. The conference business will also benefit. For now, we have a 150-square-metre conference centre in the SkyCourt. The hotel will offer more conference options, with several smaller, but combinable rooms, able to host up to 350 people. Until now, people mostly had to travel to the city to organise a conference. All in all, we expect that the hotel will be a catalyst for further real estate investment projects. Until now, the skyline of Terminal 2 was mainly composed of the SkyCourt and the two wings. After the construction of the hotel, this is going to change significantly.

After the bankruptcy of Malév, all the investment projects stopped in an instant. Now they are restarting, one after the other. Looking at the masterplan from the old times, what is still missing?

At the beginning of next year, the foundations for pier B will be laid. The so-called Cargo City project is going to be launched. The project was ready in 2011, when the lease contracts had been signed and I signed the construction contract. Then, the Malév bankruptcy came along, and we had to stop or shift everything accordingly. Now we have finally restarted the project, also because our growth in the air cargo segment is amazing at the moment. We saw an increase of 14% in August, compared to 12 months ago, which means we are clearly growing faster than the European and worldwide average. This year, we are probably going to surpass the sound barrier of 100,000 tons. Cargo City will finally enable us to grow even more dynamically in this sector. We are getting closer and closer to reaching peak capacity. I expect construction to start at the end of next year. One year later, the project will be completed.

Why is there such dynamic growth in this segment?

Part of the reason is that there are some large so-called integrators that are very active with us, namely DHL, FedEx, TNT and UPS. It’s also because we are growing dynamically in terms of so-called belly cargo. This is cargo that is transported on board normal passenger flights, in the cargo hold. Air China, for example, flies a full load of cargo to Beijing each day. Emirates is also active in this field, having a daily flight to Dubai. There are also dedicated cargo aircraft at our airport, which only carry cargo. Just as in terms of passenger traffic, Budapest is developing into a hub for cargo as well. With Cargolux, Qatar Cargo and Turkish Cargo, we have all the major airlines working in this segment at our airport. Qatar Cargo began with two flights a week between Doha and Budapest. In October, they added a third flight. This means that the airline is quite satisfied with their new destination. All of this is of course backed up by the demand of companies active in Hungary, but also the attractive cost levels in Budapest.

Unfortunately, in terms of facilities, the situation is not that optimal yet.

Yes, we are clearly missing some modern facilities. If we would like to continue growing in this area, we have to correct this shortcoming. The planned Cargo City will clearly allow us to bring more cargo volume to Budapest. This is the feedback that we are continuously hearing from all the market players, namely from the freight forwarders and the cargo airlines. This is why Cargo City is my most urgent task at the moment. After we finish the hotel project and the integrator project for TNT and DHL, I will turn all my attention towards completing Cargo City. In the cargo sector, we still have a clear potential for growth. While our airport will likely surpass the 100,000 tons of cargo for the first time this year, Vienna is transporting about 200,000 tons each year. We would like to get there too. We would like to get another piece of this Vienna cake.

What is meant by the integrator project that you just mentioned?

Near Terminal 1, there were many old cargo buildings formerly used by Malév, a total of 30,000 square metres, partly built back in the 1950s. We are demolishing all of them now. We are talking about a piece of land as large as 60,000 square metres. We are building two modern buildings there. This is the so-called integrator project. TNT and DHL are going to move into the new buildings. Both companies are performing these activities next to the M5 at the moment. They used to have only a small branch office at the airport. Now they will have a new facility of about 13,000 square metres each. The two companies are going to bring a total of 600 office workers to the airport. Both of them decided around the same time that they would like to move to the airport. Both lease contracts are signed. We have already started construction for TNT, and you can see the progress each day at the site. For DHL, we handed over the site to the construction company a few days ago. Both projects are going to be completed next summer. Budapest is becoming more and more a regional hub.

What is the difference between Cargo City and the integrator project?

Cargo City deals with larger volumes, transported with dedicated cargo aircraft. They are partly special products that need particular storage conditions, for example high-value goods or dangerous goods. Medicine requires special cooling systems. However, the major part of this cargo is large volume goods, such as cars or even livestock. At the moment, they are handling all these goods in an old building at Terminal 1. For now, the current volume can still be handled there, but not the volume we are expecting to have in five years.

You are also going to establish two modern cargo bases, right?

Yes. Concerning Cargo City, I think that as soon as the first building is up and running, there will be further buildings constructed, because there are more freight forwarders who would like to expand their local cargo and storage capacities. This is what you can see happening for example at Vienna and Frankfurt airports. So I am not worried in terms of cargo, we only have to give it an initial push. The first building has to be completed; this is my most important task.

Is there any news on the Airport Business Park?

DHL Global Forwarding is our largest tenant there. All the old buildings have been cleared, and we are beginning to market these areas. Negotiations with other logistics companies are ongoing. A gas station and fast-food chains could also make a good living at this attractive, accessible and visible spot.

 

What about aircraft maintenance?

A new hangar was built and handed over to Wizz Air last year, among other things. Its size fits the larger Airbus A321, which is the type to which Wizz Air is currently switching, step by step. We have installed a mobile hangar for Lufthansa Technik. All the hangars are very well equipped. I expect further growth in this area as well.

What about office buildings?

There are three office buildings near Terminal 1 that were originally supposed to host the Malév headquarters. We have already renovated one of them, and it is completely sold out. This is a great success, considering the difficult situation in the office space market near the airport at the moment. If there is demand, we can renovate the other two buildings.

What about your flight simulator?

That is primarily used by Wizz Air employees. The demand is so large that we had to put a second simulator into operation two weeks ago. This is another area where we expect growth, since Wizz Air is growing constantly, and putting more and more crews to work, who need to be trained on a regular basis.

This all sounds like an immense amount of work!

It absolutely is. But it’s also a lot of fun.

Fun, for how long?

I have been working here since 2007, and I am not planning to go away. Why would I? I can make things happen here. This is a dream come true for every real estate developer. We have a prosperous airport, and there are users who gradually need more and more areas. We will keep on building tailored-made facilities, in collaboration with our tenants. With DHL and TNT, we have worked almost two years on the operative concept for their buildings. These are all very exciting challenges.