Hitting Rock Bottom

Few business sectors have been as hard hit globally by the coronavirus pandemic as tourism and Hungary is no exception to this sad reality. As tourism-related revenues have fallen off a cliff and government aid has been all but a trickle, the sector is struggling for survival.

In the decade leading up to 2020, Hungary’s allure as a tourist destination skyrocketed and the sector underwent spectacular expansion. As a result, its contribution to the country’s economic performance increased steadily over the years. The number of guest nights spent in Hungary increased by 2.7% in 2019 and by 14% in January, 2020 alone. Those favorable developments came to an abrupt halt in the spring of 2020, when the first wave of the pandemic hit, resulting in widespread travel restrictions. In March 2020, the number of nights spent by foreign guests in commercial accommodations in Hungary collapsed by 68% compared to the year before. Except for a few months during the summer, the restrictions remained in place, pushing many companies into bankruptcy. In addition to thousands of jobs lost over the past year, the upheaval of the sector has had considerable ramifications for the nation’s struggling economy. At the moment, the government has few options for reviving the economy, amid a scarcity of meaningful relief aid to citizens and businesses.

Dire straits
The coronavirus epidemic has ravaged Hungary’s tourism sector and the figures are staggering. Last year, the spending of foreigners in Hungary shrank to just over half compared to the previous year. According to data published by the Central Statistical Office (KSH), the expenditure of foreigners in Hungary exceeded HUF 2.3 trillion (EUR 6.3 billion) in 2019, but last year it barely reached HUF 1.3 trillion (EUR 3.5 billion). The number of people visiting the country for a vacation declined by a sharp 60% in 2020 and 75% less tourists came for sightseeing than in 2019. In addition, recreational tourism expenditures have decreased significantly across the board as spending on accommodation and meals fell by almost two-thirds and foreigners spent only one-fifth on cultural programs as a year earlier.

Insufficient state support
The EU has taken measures to help businesses and workers from the tourism sector, including liquidity support, fiscal relief and an easing of state aid rules, as well as the temporary suspension of rules on airport slots to avoid empty flights. Hospitality businesses in many member states are receiving significant compensation for lost income caused by the restrictions, but companies in Hungary are mostly starved of state subsidies. Media reports showed that most establishments went without any financial support from the state until the end of January 2020, which caused many cafe and restaurant owners to defy restrictions and open up their establishments. In an effort to stem a countrywide revolt in the sector, the government started paying out wage subsidies, but these were often minuscule amounts. The manager of a cafe in the 9th district of Budapest told news website Telex that 105 days after filing their claim for compensation, they received wage subsidies, which equaled HUF 10,416 (EUR 28.8) per employee per month. Michelin-star Babel and KIOSK owner Hubert Hlatky-Schlichter told news website Index that wage subsidies came late and were insufficient, especially in international comparison.

Proctracted pain
Although vaccinations for the coronavirus are being rolled out worldwide, it’s going to be months before enough shots are delivered that mass travel can resume. That means tourism faces another tough year in 2021. In most countries, the expectation is that this year will be better than 2020, but that’s a low bar to hit. European Commission figures showed non-resident holiday nights in Italy, Spain and Greece fell at least 70% in the first 3 months of the year, and it warned the industry to brace for another quiet year. “Tourism flows on the whole are not expected to fully recover to their pre-crisis levels in 2021,” the commission said. In Italy, tourism will lag behind the broader economic recovery as visitors “only gradually return as uncertainty diminishes.”
Earlier media reports said that closures in Hungary could remain in effect until May 23. This would put great pressure on the country’s ailing tourism sector and could prove fatal for many businesses.