Problems in the Hungarian hotel sector

In this subchapter the most important challenges of the Hungarian hotel sector is listed and described.

According to Győrffy (2010) the following categories can be identified as the most pressing matters in the Hungarian hotels sector.

81 Prices

The prices of Hungarian hotels can be claimed to be low comparing all the costs in connection with operating a hotel. The low level of prices mean that there is a slight difference between the price of a 5 or 4 star hotel but guests expect higher quality in a 5 star establishment. The low level of rates aimed to increase the occupancy rate, although it is only about 50%. In the author’sopinion the price issue can be noticed in case of 3 and 4 star hotels even more. The consequence of the decreased prices is that there is no money left for maintenance which results that hotels cannot provide quality equipment for the guests or work with any. It makes it even harder for the staff to satisfy the guest needs because they have to make up for the mistakes and deficiencies of the intangibles. (Győrffy, 2010)

Liabilities

The low price is not the only problem holding down the revenue flow and worsening the profit (if there is any) of hotels in Hungary. Hotels’ working capital level is almost zero, they have to take more and more liabilities to be able to finance their operation but they have to pay the interests of these liabilities as well. (Győrffy, 2010) This fact also leads to the lack of revenue in the hotel industry and puts hotels in a vicious circle, where they only concentrate on prices instead of the quality they need to provide for their guests.

Cooperation

As this situation makes it hard for hotels to develop their service and innovate, it has to rely on its environment more than usual. The establishment needs to make the cooperation with the city government much tighter as well as with state and the destination. As it is known tourists tend to choose the destination first and then the hotel in the chosen city or village.

(Győrffy, 2010) Human Resource

The bigger role of the staff has already been mentioned before but it has to be emphasised again. The workers in the hotel – whatever jobs they do – need to know they all are sales and marketing people as Lavenson (1973) claimed as well amond other important human resource innovations. Győrffy (2010) also suggested that the staff has to be provided with a plan for the future to make it easier for them to accomplish the goals of the company. Nowadays there is a new trend among hotel managers: they keep as little contact with the guests as possible, which

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worsens the atmosphere at the workplace. As Lavenson (1973) suggested the general manager has to make time to talk to their guests and listen to their complaints and opinions. Since hotels need to reduce their costs to be able to work, some of them use outsourcing as a tool, although this method can also have a negative effect on quality and atmosphere in the hotel.

Marketing mix

Another significant problem - originates from the previously mentioned ones - is the lack of complex application of marketing mix. As it has already been mentioned before, hotels only concentrate on prices (the second P of the marketing mix). They want to compete with others only with low room rates; they do not optimise their sales channels (the ratio of direct sales is low) and communication channels Győrffy (2010). The sales channel recently includes - sometimes only includes - the couponing websites. There are about 60 sites in Hungary and hotels use then as sales and communication channels as well. The role of these couponing companies has risen to be so significant that the Hungarian Hotel & Restaurant Association had to stand up and warn hotels about the dangers of using these sites as the main tool to sell their rooms. They emphasise that couponing only can be well used as a communication channel but they are not able to provide higher revenues for hotels.

(http://www.hah.hu/aktualitasok/allasfoglalasok/ajanlasok-szallodak-reszere-a-kuponos-kedvezmenyes-portalokkal-k/ 8/1/2014)

As Győrffy (2010) suggested there is a problem with the percentage of loyal guests in Hungarian hotels as well because it is mostly under 10% Győrffy (2010). It can be seen as a quality or a revenue issue.

The above mentioned problems show that the current situation of hotels has to be altered or many of them are going to go bankrupt and be taken over by a bank or close. Hungarian hotels has to break out of the vicious circle of cost reduction and put the emphasis on quality improvements through the optimisation of their own operation and delivering services according to their guests' needs. As it has been illustrated in the analysis of the Hungarian statistics data the number of hotels has risen too much but considering the problems it did not include higher quality or a competitive edge.

(http://www.hah.hu/files/2213/5272/1421/Szallodaipar_helyzetertekelese_2007_2012.pdf 8/1/2014)

These problems are essential however Juhász (2009) suggests that they are only the consequences of a larger issue: lack of market segmentation or bad segmentation. In his recent

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article (Juhász, 2014), he raises the attention on the process which starts with wrong target segments, which is followed by guest dissatisfaction, less demand, less revenue and employee dissatisfaction which puts the operation of the hotel into a negative circle. As an example of bad market segmentation there can be seen to be a complete lack of recognition of young people as important segments (Juhász, 2011a). In his research he found out that the 31% of the sample (young people) use hotels as accommodation instead of youth hostels (8%) which are actually built on their demand. Of course this segment cannot be the main target segment although they could be counted on. (Juhász, 2011b)

Now if hotel managers want their hotel to operate in the future they have to change the paradigm mentioned in this subchapter and turn to quality. The aim of this thesis is to prove that the know-how to be able to use standardisation and customisation to reach their different goals.

2.6.5 Conclusion

The aim of this section was to introduce the special characteristics of the Hungarian hotel sector and highlight the problems which can be solved or helped by the theory which is being tested throughout this thesis. The analysis shows that the three-, four and five-star hotels are much more successful in every number than other. That is the reason why they have been chosen for sample in this current research. From this group it is still obvious according to the data that five-star hotels have the best occupancy rates and revenue as well. The problems of the Hungarian hotel sector do not make their situation as hard as in case of other hotels. The mentioned issues are all in connection with quality in the author’s opinion and the method and theory of this thesis can help with dealing with these difficulties.

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3 Research objectives and hypotheses

The following chapter contains the research objectives and the hypotheses the author determined and undertook the research to examine and prove or reject them.