Storm clouds stacking up over Budapest Airport

By bne IntelliNews July 4, 2012

Kester Eddy in Budapest -

The international consortium operating Budapest Airport has had a bumpy ride this year, and is threatening action against what it claims is unfair treatment at the hands of the state. However, not everyone is sympathetic.

The corporate mood at Budapest Airport in the new year was triumphant, epitomised by an early January press release headlined: "Budapest Airport 2011: All traffic records beaten!" Budapest Airport, the operator of Franz Liszt International - essentially Hungary's sole international airport, had registered "an amazing 8.9% traffic increase and recorded an all-time high of 8.92m passengers," in 2011, the statement read.

After opening SkyCourt - a gleaming new state-of-the-art terminal building - earlier in the year, and scooping the European section of the World Routes Airport Marketing Awards - a coveted industry prize - in October, it seemed nothing could stymie the airports march onwards and upwards. Jost Lammers, CEO of Budapest Airport, boasted at the time that passengers were being offered a "much higher standard of service," than previously, and that the operator's four-year investment programme, was "now starting to pay off."

Less than a month later, on February 3, airport staff were scrambling in the pre-dawn gloom to re-direct thousands of would-be passengers, otherwise stranded as a result of the insolvency of the airport's principal customer: Hungary's flag carrier Malev. It surely could not get worse for Budapest Airport, a consortium of investors headed by Hochtief of Germany, which bought the operating rights from the state in 2007 than losing an airline which constituted around 40% of its passenger traffic.

Stacking up

However, the problems are continuing to stack up. Not two months after the Malev collapse, the Hungarian parliament modified the airport's land categorization, in a move that more than tripled land taxes to Ft 2.25bn (€7.6m) per year. Outraged, Budapest Airport claimed the move would cause further damage to the Hungarian aviation and tourism sectors, and warning it would need to pass on costs.

On June 29, Budapest Airport announced it will appeal the tax hike to the Hungarian constitutional court, arguing that it has been subjected to a "disproportionately large increase in land tax ... that violates the constitutional principle of the proportionate sharing of public burdens." In additon, in response to emailed questions, Lammers tells bne that the operator plans to raise landing fees "from the end of October" by an unspecified amount. "Consultations have just started. [It should be] no surprise there will be an increase in airport taxes since the airport has suffered a double blow from the collapse of Malev and the increase in land tax," he insisted.

Lammers expects aircraft movements to be down by almost a quarter this year, with passenger numbers touching just 8m in "a best case scenario," Despite beating that number by almost 1m in 2011, Budapest Airport says it lost Ft 8bn before tax last year. Compounding this, the latest crises have provoked the company into shedding 250 jobs in 2012 - reducing staff from 1,050 at the start of the year. In addition, the closure of the communist-era Terminal 1 earlier this year is expected to save €2m annually, Lammers says, whilst the airport has put its €50m "Cargo City" investment project on hold.

Budapest Airport is pushing the scenario that its struggles will only have a ripple effect on associated industry. "Cargo City is now expected to commence in two years time, [but meanwhile] this will have a negative impact on the construction industry and jobs in that sector," Lammers states. "This €50m capex was in addition to the €261m commitment undertaken as part of the airport privatisation [agreement], which has already been fully delivered."

The tourism sector, suffering in particular from a drop in high-spending conference and business visitors in the wake of the Malev grounding, appears sympathetic to the cause. "The increased network and frequency of the budget airlines is bringing additional visitors, but it is hard or nearly impossible to replace a national airline," Akos Niklai, vice-president of the Hungarian Hotel and Restaurant Association says.

The tourism lobbiest also praises Budapest Airport for continuing development when the economic recession hit Hungary. "The airport remained one of the few major investments in Hungary, fully carried out on time. The Hungarian tourism sector ... crosses its fingers that Liszt Ferenc Airport, after this unbudgeted additional tax - and after Malev's collapse - will be able to operate," he said.

Whining kitten

However, not everyone is so sympathetic. Rakosmente council, one of the districts set to benefit from the increased land tax payments, has no truck with operator's arguments. "Hungarian airports are subject to the legitimate decisions of the Hungarian parliament. People and companies in Hungary pay taxes .... the vast majority of foreign investors in large companies do so without complaint. But Budapest Airport is trying to avoid this duty, like a whining kitten, trying to avoid its community responsibilities," it said in a stern response.

Despite Lammers' assertion that the airlines using the airport " have shown a great deal of empathy" to what he terms "the impossible situation" caused by the increased tax burden, there is resistance to that line from at least one major budget carrier. Asked, by bne for the view from Ryanair, CEO Michael O'Leary roundly condemns Budapest Airport's efforts to raise landing fees, saying the operator has suffered no "double blow" from the Malev collapse.

"Ryanair and others have responded with new routes, increased flights and more business, while the airport has shut Terminal 1 to save even more money," he insists. "We will be making submissions to the Hungarian Civil Aviation Authority to reject this unnecessary and unjustified airport fee increase, particularly when Budapest Airport has failed to demonstrate or deliver any cost reductions [to airlines]," he adds.

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