The Hungarian government forces Wizz Air to pay additional taxes!

On May 26, 2022, the Hungarian government released important tax information. Airlines that have not paid a surcharge in the past are now on the government’s list of additional levies. This is a surprise as the sector is just beginning to recover from the shock of the coronavirus outbreak. Read below for more details.

Economist Márton Nagy detailed his thoughts during the government briefing: “All airlines operating in Hungary will now have to pay a surcharge, with a fee of €10 per passenger”.

Portfólió reports that Márton Nagy justified the airline tax by saying that passenger traffic at Budapest airport is growing rapidly. The summer travel season is likely to be strong as people want to go abroad after two years of restrictions.

Wizz Air losses

Wizz Air is the largest of the Hungarian airlines in terms of market share, so the special tax announced today, totaling 30 billion forints per year, is expected to hit the company founded by József Váradi the hardest. . During the most recent fiscal year, Wizz Air held 31.5 percent of the Hungarian market. This is followed by Ryanairwhich was the second largest with a share of 20.8%. Lufthansa was third with 7.3 percent.

Wizz Air is an important player throughout Europe and the Hungarian operation plays a key role. The airline’s Hungarian subsidiary, Wizz Air Hungary, made a profit of 286 million euros in 2019. After tax, Wizz Air lost 721 euros in the epidemic-hit year 2020. The entire airline industry was in the red that year, not just Wizz Air.

There is no additional profit for the Hungarian-based airline. In its latest annual report for the fiscal year ending March 2021, Wizz Air Holdings reported a loss of 482 million euros. The recovery has started in the industry, traffic is starting to pick up and the summer is looking bright based on bookings. Analyst consensus is that Wizz Air could have had an even bigger loss of €644 million for the year ending March 2022. Refinitiv consensus suggests that even the current year could be loss-making, with a less than 119 million euros.

It is highly likely that the Hungarian government will tax a loss-making company.

Additional Information

The picture is made more complicated by another fact. The sector which has just recovered is hard hit by the rise in kerosene prices. Prices weigh heavily on airline operating costs. Hedging is only a temporary solution, not a protection against the upward price trend. All of this combined has a major negative impact on the industry’s profit outlook.

Index reports that this is not the first time that the Hungarian government has used taxation in this way. Based on experience, they can be bolder in their exploitation at the sectoral level. A big question regarding Wizz Air is how they plan to pass on the additional tax to customers. All of this could affect ticket prices, but it will depend on the competition in the market.

Source: portfolio.hu, index.hu

Laura T. Thrasher