Budapest airport

(Beyondbricks) One week ago, when Attila Kozsik heard the news that Malev, the Hungarian flag carrier, had grounded all planes, he knew it meant problems.

Kozsik is chief financial officer at Crnogorska Komercijalna Banka, Montenegro’s largest commercial bank, based in Podgorica. It is also a subsidiary of OTP, the Hungarian bank that has been expanding its reach in the region in the past decade. For him, losing Malev also meant losing the only carrier offering direct flights between Podgorica and Budapest.

“We are definitely not happy about this. Of course, we can find alternative routes, but those will either take longer, or be more expensive, or both,” he told beyondbrics.

The industry’s response to the collapse of Malev has been spectacular: a dozen or so airlines have announced new routes, increased services or said they will use larger aircraft on existing services. The list includes Lufthansa, Air Berlin, Aegean, Wizz Air, Smart Wings and, most notably, Ryanair – which on Thursday said it would allocate three aircraft in Budapest by the end of next week and another two in March.

Ryanair expects some 2.4m passengers on its Budapest flights this year. This, together with expansion of Wizz Air, which expects to roughly double its volumes of 1.2m in 2011, means the two airlines alone look set to fill the void purely in passenger numbers formerly carried by Malev – which managed 3.2m last year.

But the problem for Kozsik is that, despite this rapid and robust response, the new airlines have either cherry picked popular, well-trafficked routes, or pioneered others, mostly to cities in western Europe.

None appear to have considered replicating Malev’s strategy of developing feeder routes to cities like Chisinau, the capital of Moldova, Tirana, in Albania, or the handful of cities Malev served in former Yugoslavia including Sarajevo, Belgrade, Skopje and Pristina.

“This has implications for Budapest as a centre for doing business in the region. Several Hungarian businesses, such as OTP Bank, Mol [the energy group] and Magyar Telekom have subsidiaries in the Balkans. Without direct flights, managing these companies will become more difficult,” Mihaly Hardy, spokeman for Budapest Airport, told beyondbrics.

And not just Hungarian companies, says Chris Bennett, the Budapest-based director for Europa Capital Emerging Europe, a property development company.

“From my point of view this is a real bugger, as Malev provided most of the flights to Bucharest and Sofia – my most frequent destinations – and most other Romanian and Balkan destinations,” Bennett says.

Jozsef Varadi, chief executive of Wizz Air, has specifically (and repeatedly) excluded picking up such routes several times in the past week. “We are not, nor will we be another Malev. Our business model is entirely different,” he told a press conference on Tuesday.

“These are low intensity routes, often suitable for smaller, perhaps 30-seat planes [rather than the larger jets operated by the low-cost carriers],” said Hardy at Budapest Airport.

True, Bucharest and Sofia are being picked up by some discount carriers, but at a cost in quality.

“Malev was much more reliable and flexible than Ryanair. My impression was also that they had more space. I hate not having a seat assigned to me and so on. And when I fly to London, I want to fly to a proper airport and not Luton!” Bennett says.

As a regional centre, Budapest, he argues, “really is the best place to live. All the main cities are about one hour’s flight from here. The alternatives of low cost airlines or flights via Vienna are just not attractive.”

The Hungarian government insists it is still seeking to establish a new flag carrier, but “with every passing day, as new carriers come in, the chances are getting less and less,” says Hardy.

“I think there are about 20-25 former Malev routes that will never be re-established, such as to the Balkans, and also Tripoli and Beirut,” he says.

Bennet is particularly glum regarding the effects on Budapest: “I think it will be another nail in Hungary’s coffin, at least for the time being, as Malev did make this a good place to base oneself for the region.”

source: blogs.ft.com/beyond-brics