Hungarian Government is making Wizz Air pay extra taxes!

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

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

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

The losses of Wizz Air

Wizz Air is the largest of the Hungarian airlines in terms of market share, so the special tax announced today, meaning a total of 30 billion forints per year, is likely to hit the company founded by József Váradi the hardest. In the most recent financial year, Wizz Air had a 31.5 per cent share of the Hungarian market. This is followed by Ryanair, which was the second-largest with a 20.8 per cent share. Lufthansa was third with 7.3 per cent.

Wizz Air is a big player across Europe, and the Hungarian operation plays a key role. The airline’s Hungarian subsidiary, Wizz Air Hungary, had a €286 million profit in 2019. After taxation, Wizz Air lost €721 in the epidemic-hit year of 2020. The whole airline sector was in the red that year, not just Wizz Air.

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

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

Additional insights

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

Index reports that this is not the first time the Hungarian government uses taxation this way. Based on experience, they may be bolder in their exploitation on a sectoral level. A big question regarding Wizz Air is how they expect to pass on the extra tax to customers. All this might affect ticket prices, but that will depend on market competition.

• Read More: Will Hungarian Wizz Air fly to the USA?

Source: portfolio.hu, index.hu