Hungary Tourism Report Q2 2008

Tourism Overview After a favourable increase of some 6% year-on-year (y-o-y) in foreign visitor arrivals to Hungary in 2006, BMI expects slightly weaker growth in 2007. Latest official data for the first three quarters of 2007 show foreign visitor arrivals totalled almost 30.9m, compared with around 29.7mn in the same period of the previous year, representing a reasonable increase of 4% y-o-y. Of particular note, was the relatively low growth in arrivals from both Romania and Slovakia (the key source markets) of 2.4% and 4.6% y-o-y respectively, especially compared with the buoyant increases recorded in 2006. After a decline in outbound Hungarian traveller numbers in 2006, meanwhile, there appears to have been a rebound in 2007.

Forecast Scenario Sharp declines in domestic consumption will continue to depress economic activity in Hungary over the medium term. While an anticipated improvement in government finances will help to justify new spending commitments beyond 2008, we are concerned that Hungary will continue to fall behind its regional peers in terms of competitiveness, which is bound to present further risks to economic growth.

In line with the latest data for arrivals, BMI has reduced slightly its growth estimate for 2007 as a whole, to just over 4% y-o-y, with the number of foreign visitors expected to total around 40mn. We also continue to maintain that growth in arrivals will slow further in 2008 and 2009, partly due to weaker economic conditions in key source markets, particularly the eurozone and Slovakia. Consequently, this quarter, BMI forecasts somewhat weaker growth in arrivals during the period 2008 to 2012, averaging near 3.5% a year.

Hospitality The most recent data show continuing weakness in foreign tourist nights (after a 7% y-o-y decline in 2006), with the number of nights spent in all accommodation establishments down 1% y-o-y in the period January to October 2007 (the number of nights by German tourists fell nearly 9% y-o-y). The average occupancy rate of hotel rooms in the first eleven months of 2007 was 51.1%, although higher rates were recorded in four- and five-star hotels, at 58% and 70%, respectively.

Malv Hungarian Airlines Latest data on passenger numbers for the first eleven months of 2007 for the national flag carrier Malv Hungarian Airlines show favourable growth of 6% y-o-y. The airline's recent membership of the oneworld airline alliance clearly contributed to strong growth in the number of business travellers over the period (up around 10% y-o-y). Surprisingly, growth in total passenger numbers was also particularly favourable outside the high season, with increases of 8.5% y-o-y in October and 16.3% y-o-y in November. Moreover, business traffic increased markedly, by 18% and 14% y-o-y respectively, in the same two months.

Wizz Air In October 2007, the Hungarian low-cost carrier Wizz Air ordered 50 Airbus A320s (bringing its recent total order to 82 A320s) and an option for 25 more. The 50 new planes are to be delivered between 2011- 2014, while the option covers the period 2014-2016. As part of its growth plan, the airline has announced further expansion of its operations in Hungary and Poland, with increased flight routes and frequencies, including the opening of its seventh new base in Poznan (Poland) in January 2008. Overall, the changes will result in a 27% increase in flights at its Budapest operations, compared with the summer of 2007, and a 40% overall frequency increase from Katowice. In addition, in May 2008, Wizz Air will open its eighth operating base in Cluj (Romania) with one new A320 aircraft and local crew.