Hungary is among the European countries that have benefited the most from growth in international travel. Between 2008 and 2019, the tourism industry’s share in Hungary’s gross domestic product (GDP) rose by a full percentage point, versus 0.2 percentage points for all of Europe, and 0.5 percentage points globally.1 Now, with global tourism expected to rise by 7.5 percent a year until 2030, Hungary could capture even more growth in the sector with Budapest at the lead.2 The country’s capital accounts for nearly 60 percent of Hungary’s international tourist traffic and already ranks among the top 15 European tourist destinations (Exhibit 1). Yet, our analysis suggests that its tourism industry has significantly more room to grow.
When we examined Budapest’s tourism industry, we applied McKinsey’s global expertise in travel and tourism to look at five widely recognized drivers of performance: demand, product, accommodation, access, and enabling environment. We compared Budapest’s performance across these drivers to that of peer cities, including Barcelona, Berlin, Lisbon, Prague, Milan, and Vienna, which are similar in size and, like Budapest, offer visitors cultural and historical attractions in a cosmopolitan setting. We also spoke with industry stakeholders, including industry organizations, hotel and restaurant operators, airlines, travel agencies, authorities, conference and entertainment agencies, and other tourism venue operators, to hear their ideas on what is working well for Budapest’s tourism industry, and what might be improved.
Our findings uncovered several opportunities for Budapest to boost its tourism industry. For example, Budapest could do more to promote its value as a tourist destination. Consider that Hungary’s capital receives roughly the same number of travel-related Google searches as peer cities like Vienna and Prague, but it receives at least 30 percent fewer international visitors.3 Budapest also receives fewer visitors from high potential source markets, like Germany, the United States, and France, than its peers. It also offers fewer flights serving mid and long-haul routes: Budapest’s airport serves 32 destinations compared to a peer average of 53.4
Budapest similarly is not yet drawing as many business travelers as do peer cities, partly because it has just one large-scale modern conference venue and does not have hotels with capacity over 500 rooms. Moreover, Budapest offers the lowest number of hotel rooms compared to peers and most of these fall into the economy or mid-scale categories. According to announced capacity, more upscale hotels will be opening over the next few years, affording Budapest an opportunity to draw more premium and luxury travelers, who represent a growing segment of the global tourism market.
Potential growth scenarios
Oxford Economics estimates that the number of outbound travelers globally will rise from 892 million in 2023 to 1.48 billion in 2030. This trend is likely to impact Budapest, where international visitors represented 83 percent of visitor nights in commercial accommodations in 2023.5 Our conservative scenario assumes that Budapest can match global growth forecasts and increase tourism by 7 percent annually to 2030. This scenario projects that Budapest’s overall share of the global tourism market will remain flat, and it will not reach the level of its peers. Budapest would need to put substantial work and investment into its tourism industry to even maintain its market share. A most concerted effort to increase market share could enable the city to expand the tourism sector by nearly 12 percent per year between 2023 and 2030. This more ambitious scenario would also enable Budapest to close its market share gap vis-à-vis peers by 50 percent (Exhibit 2).
One way that Budapest might pursue the more ambitious scenario is by aiming to increase visitors from selected high-potential markets, such as the US, Germany, and France. It might also tap deeper into source markets where it already excels, like South Korea or China. It is important to note that tourism growth under the conservative scenario is actually slower than the growth rates that Budapest’s tourism industry achieved between 2010 and 2019.6 And although the potential growth rate of 12 percent may seem high, it is in line with the 10-plus-percent growth rates that over 50 cities globally achieved in seven-year periods between 2000 and 2019, including some of the selected peers such as Barcelona and Berlin.7
Based on our conservative and aspirational scenarios, respectively, Budapest’s tourism industry has the potential to add 1.1 trillion to 1.9 trillion HUF to Hungary’s GDP by 2030 (equivalent to 1.5-2.5 percentage points of current GDP). The city might also be able to double the number of international visitor nights by 2030, while realizing a two to three times increase in tourist spending, which could also improve the country’s trade balance. According to the two scenarios, growth in the tourism industry might create 23,000 to 49,000 new jobs. Together, these results could have spillover effects across Hungary, such as by increasing tourism and generating jobs in surrounding regions (Exhibit 3).
But to achieve these outcomes, industry stakeholders need to move quickly and effectively. Peer cities captured an average 0.65 percent share of the global tourism market in 2023, versus Budapest’s 0.37 percent. Budapest could fall further behind unless it acts now to start closing the gap.8
10 opportunities for growth
To this end, and to achieve the economic and financial results described above, Budapest could consider the following opportunities:
- Budapest might cultivate a profile that defines the unique benefits and experiences it offers to visitors and guides the development of its tourism ecosystem. It could consider further emphasizing distinctive attractions, like its thermal baths and Castle Hill; cultural experiences, such as its Jewish Quarter; amenities (including accommodation and infrastructure); and the overall value that visitors can expect to enjoy.
- Budapest could benefit from structured collaboration among industry stakeholders, including industry organizations, hotel and restaurant operators, airlines, travel agencies, authorities, and conference organizers, among others to drive joint initiatives.
- To attract greater volumes of visitors, Budapest might launch dedicated initiatives in the highest potential source markets, such as China, the United States, and Germany.
- The city might also aim to elevate its image among premium and luxury tourists to attract a growing segment of the tourist market and benefit from an increase in average spend per tourist.
- To capture more attention across tourist segments, the city could explore optimizing digital marketing with targeted, personalized content that draws potential visitors to direct channels and attracts return visitors. Developing the necessary data, digital marketing and personalization capabilities will be essential to succeed. To help promote these initiatives, Budapest might explore strategic partnerships with relevant actors, such as online travel sites, travel agencies, and airlines.
- Budapest might bring in more visitors by enhancing its product offerings. For example, the development of premium retail establishments, greater offerings of professional tours showcasing Budapest’s history and local cuisine, and additional parks and recreational attractions could benefit both international visitors and Hungarians.
- To draw more business travelers, Budapest might consider hosting more international meetings, incentive trips, conferences, and exhibitions (MICE). Given its current shortage of large-scale venues, Budapest could initially consider hosting specialized conferences, potentially in partnership with major MICE organizers. The development of a new flagship conference venue could enable Budapest to host more large-scale events, such as major industry meetings.
- If visitor volumes continue to rise, Budapest could consider encouraging the development of more accommodation capacity, especially outside the most crowded districts. It could also encourage investments in accommodations that host specific tourist segments, for example, by improving the offering of premium and upscale hotels, as well as larger hotels (500+ rooms) to enable more conferences.
- Budapest’s tourism industry could benefit from increasing air and rail connections with other countries. For example, the city might form alliances with airlines to increase the number of mid- and long-haul flights to source markets and to launch new routes.
- Budapest might also consider how expanded airport capacity and rail connectivity between the airport, city center, and principal city locations could enhance the experience for tourists as well as local citizens.
Getting started
Given their scope, these opportunities are likely to be realized only through the dedicated effort and collaboration of industry stakeholders. Concurrently, Budapest will also need to address how to meet increasing demand on the workforce by attracting and training more hospitality workers. It might also need to ensure that its infrastructure, such as the airport, will be able to accommodate higher volumes of tourists.
According to McKinsey’s Destination readiness index9, developed to help spot early warning signs that a destination is under stress from tourism, Budapest is relatively well-positioned to handle growth in tourism. Budapest’s economy is not heavily dependent on tourism, for example, and visitor experience is relatively high. As the sector grows, the city might address more immediate issues, such as overconcentration of accommodation in central districts and potentially overloaded infrastructure resulting from high volumes of visitors.
Our diagnostics suggest that Budapest has the capacity to expand its tourism industry. If it succeeds, Budapest has the potential to achieve substantial financial and economic gains while enhancing local infrastructure and amenities, thereby creating an environment where locals and visitors might equally thrive.
