New Airline for Hungary… Dreamers or Lunatics?

Hungary is in dire straights these days. A government with two-thirds majority in parliament having declared a fight for freedom and the desire not to be a colony of the European Union (yes, there are such weirdoes in the world), the economy in ruins and capital fleeing the sinking ship, their national airline, Malev was only one of the many casualties of this march to annihilation.
In the circumstances, anyone thinking of establishing a new Hungarian airline would probably be seen by the business community as ready for the lunatic asylum from which the current government has so obviously escaped in a moment of voter inattention.
Yet, this is exactly what a small group of enthusiastic folks seem to be doing. They have now established a company under the name Hungarian World Airways Inc. which boasts a five member board of directors and a three member supervisory board. There is not much else to the company yet and as such it may feel like a bit top heavy, but hey, before the incorporation of this new company, there was even less in the way of a new airline for this spectacularly unsuccessful former socialist country.
But what is this new airline initiative about? The figures they keep presenting at various meetings designed to attract also small investors are enough to make the mouth of any existing airline water while they will also shake in fear of this new competition. 10 million passengers in the first year with 9 billion bucks of revenue and a profit of 260 million from the third year… These guys must know something that has totally escaped the big network carriers who are, as we all know, perennially loss making.

Airbus will love the plans for a fleet of all-Airbus aircraft, 60 of them to be precise to be purchased, not leased… 6 A340s are in the plans and this is an odd choice. Out of production and not particularly efficient, the only possible attraction of a 340 is that you can come by used examples at a low price but this will be more than offset by the high operating costs.
These folks are certainly aiming high, those aircraft will serve the whole world with several hubs scattered around the main markets. It would appear that they want to make Budapest into the kind of hub the Arabian carriers have come up with and which are causing a lot of pain to the likes of KLM and Lufthansa.
They also claim a yearly growth rate of around 6-9 %…
Of course in a country where their beloved airline of 66 years has been allowed to go bankrupt (in no small measure by a prime minister who would rather be dead than seen using the rescue plans developed by his socialist predecessor), a proposal to rebuild the airline and make it even bigger will strike a chord in most everybody’s heart. From students to pensioners, the strings of their purses will likely open and their hard earned cash start to flow, just as the new company wants. Of course this will need to be supplemented by investors with even thicker purses and that is where things may come to a grinding halt.
Is this new airline idea realistic?
Looking at the overall numbers the passenger per employee ratio in the first year comes in at 1333. The same number for Southwest Airlines in 2010 was 2513. For United airlines in the same year it was 1183. We do not have figures yet for the merged United/Continental outfit but one of the reasons for the merger was to increase efficiency and this includes moving the employee per passenger ratio towards what Southwest and their ilk are producing. Clearly, the designers of the new airline are not very bold in their efficiency targets. This is a cost issue that can bite in a big way and which is very difficult to remedy afterwards. Once you have hired too many people, getting rid of the surplus is not easy, especially in a unionized airline.
Another big question concerns their analysis of the competition. Some of the markets being looked at are the epitome of take-no-prisoners competition in the form of established carriers with sophisticated products that will not be easy to equal, let alone surpass. Aiming for the niches those carriers have not discovered yet is a viable proposition of course but also a risky one.
The new airline business concept also tends to look at the premium sector as its chief source of revenue and we know that high yield passengers are important but without the masses generating high load factors, your business will not go far.
So, is it possible to create a new, profitable, airline in to-day’s air transport environment where only the low-fare carriers seem able to produce profits of any kind?
These are realistic questions, but there is an even more important one to be answered: who needs a new airline, Hungarian or otherwise?
Looking at the wholesale consolidation going on in practically all markets, it is clear that if anything, there are too many airlines, certainly of the legacy kind, and a new entrant would be hard pressed indeed to justify its existence. Of the low-fare variety, things are not that much different and most low-fare airlines have found that it is practically impossible to grow in an organic way and hence acquisitions is the only way of becoming bigger… This of course is just another form of consolidation.
So, it is safe to say that a new airline is not what the market wants unless… Well, here comes the niche idea that is a cute feature of the proposal. Go for service that the existing carriers have not provided for whatever reason and create your own market where, for a time anyway, you may even be the sole provider. Cute but those niches need to be identified very well and an operation set up that is super efficient so that profits can in fact be realized.
Do the Hungarians need a new airline of their own? Well, aviation looks back on a long and glorious tradition in the country and this cannot be clouded even by the favoritism and corrupt practices of the current government. An airline is much more than just an organization operating aircraft. It is an institution around which a whole aviation subculture can grow up, drawing talent from a wide swath of the population. So of course they need an airline to play with, they crave the feeling of pride when a plane with the tricolor on its vertical stabilizer passes overhead. And therein lies the danger. When news of the formation of this new company were published, everyone was enthusiastic… When the plan is presented at various events, people express support and want to help. But do they know anything about what is involved and the complexities of operating an airline? Hardly…
Is this new initiative the beginning of something truly great or is this just a farce?
On the face of it, such grandiose plans with so little apparent detail on how the competition will be beaten cannot and should not be taken seriously. At 60 aircraft the new Hungarian airline would still be a little player among giants who will not think twice about sucking the air out from under it…
What would you do if your dad or grandma asked you whether she should invest in this company? Would you invest your own money?
Chances are, this will never work… and yet, the sheer absurdity of what is being proposed makes one think again.
It is so crazy, it might just fly.