Budapest Airport terminal or not to terminal?

Order Description
Budapest Airport – terminal or not to terminal?

Budapest Airport (BUD) is the sole international airport of the Hungarian capital. In
the early years of capitalism in Hungary, between 1998 and 2005 it doubled its
passenger traffic from 3.9 million to 7.9 million passengers per year. The growing
Hungarian economy, the political and economic integration with the European
Union (EU) and the expansion of MALEV Hungarian Airlines mostly fueled the
growth. In 2004 when Hungary joined the EU BUD was the second largest facility of
its kind in the new EU-10 member states with ambitious plans to become a regional
hub connecting the East with the West.
In 2005 the Hungarian government privatized a majority stake in BUD to first BAA
(a British airport operator) who then resold its stake to Hochtief (a German real
estate manager). Private investors invested significant amounts into the airport
remodeling its historical Terminal 1 serving low cost carriers and adding a third
terminal named SkyCourt to connect Terminals 2A and 2B serving regular airlines.
BUD’s security features were upgraded to meet the standards of the Schengen zone
and the cargo center has also been expanded leveraging Budapest’s importance in
international logistics routes. The passenger capacity of BUD has been expanded to
ca. 11 million passengers per year.
MALEV Hungarian Airlines has always been the flagship carrier accounting for
almost half of the passenger traffic, generating significant flow of transit passengers,
followed by low cost carriers (e.g. WizzAir, EasyJet) and Lufthansa being the largest
key accounts.
On February 3rd, 2012 MALEV collapsed and seized its operations overnight. The
entire fleet of the national career was returned to the leasing company within 72
hours. In the first 7 days BUD regained 60% of its point-to-point traffic. Majority of
the new routes were opened by WizzAir – the Hungarian low cost carrier – and
Ryanair relocating a number of planes to Budapest as their home base. Lufthansa
focused on expanding its capacities to major hubs in Germany (e.g. Frankfurt and
Munich). BUD’s management decided to close Terminal 1 and relocate all airlines to
Terminal 2. Most investments were put on hold and the airport introduced new
revenue sources (e.g. fees for priority security check, parking fee for entering the
pre-terminal area for more than 5 minutes etc.). For the relocated low cost carriers
BUD built light construct tents on the runways to keep the costs of ground services
low.
By 2015, WizzAir had an estimated 32% share of BUD’s passenger traffic, followed
by Ryanair (10%) and Lufthansa (10%). By the end of 2015 the passenger traffic
was 10.3 million – a record level even surpassing the best years of MALEV’s
existence and more importantly, really close to the theoretical capacity of the
airport. However, traffic is expected to reach its peak at around 13-15 million
passengers/year that might not be enough to justify the investment into a new
terminal bringing down the average capacity utilization of the existing facilities.
BUD currently has almost no transit traffic as any other European airport without a
national carrier – the government has never announced any plans to launch one.
Questions
BUD is clearly facing a number of strategic challenges and has a number of options
and business models that can make it successful in the future.
Please put yourself in the shoes of a strategic consultant meeting the management of
BUD and the investors. Present them with your analysis of the current situation,
highlight key strategic options they can choose from and make a clear
recommendation on what you think BUD should be doing in the next 5 years. Please
keep in mind the realities of BUD, the stakeholders, time for implementation and the
owner’s limited willingness to make further investments. Please be specific about
the expected results and the potential risks while implementing your proposed
strategy

Intended Learning Outcomes:
– Formulate, implement and evaluate global firm strategy by applying strategic
knowledge relevant in complex situations
– Evaluate business and functional level strategies and their implications for
building (or losing) competitive advantage
– Judge and reflect on current and future trends, including knowledge
management, alliances and networks, and sustainable business practices
– Hypothesise different courses of action that they could have taken in a selfreflective
manner and devise future action
b) Description of assignment
– Students will be provided with a ?one pager? description of a company facing
strategic challenges in 2016
– Students are asked to critically analyse and evaluate the potential strategic
options in 2,500 words
– Based on concepts learned in the module students are asked to recommend
these companies an optimal strategy going forward