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Hungary’s new “excess profits” tax has resulted in the country’s number one low-cost airline, Ryanair taking some serious actions in opposition to it. Calling it a “misguided” and an “idiotic” new tax levied on departing passengers, Ryanair cuts several Budapest routes and reduces frequencies on seven others.
Not only this, but the airline’s CEO, Michael O’Leary, made it clear that the era of EUR 10 flight tickets was also over.
It all started when the Hungarian government started a new tax, dubbed the “excess profits” tax, as part of a broad set of fiscal measures placing taxes worth 800 billion forints which is equivalent to $2.19 billion, on “extra profits” earned by various industries such as banks, energy firms, and other companies.
These sectors, the government claims, have enjoyed increased profits during the recovery from the pandemic. A total of seven sectors were affected and imposed with the tax including aviation, which significantly affected Budapest stocks and rattled the investors.
Coming into effect from 1st July, the tax costs 3,900 HUF ($10) for intra-Europe flights and 9,750 HUF ($25) for other flights on passengers departing Hungary. As the tax is per departing passenger, transfer passengers are not affected.
Calling the tax stupid and bizarre, Ryanair stated that the sector suffered significant losses during the COVID pandemic instead of gaining “excess profits”, urging the government to scrap the new tax. The airline issued a statement as follows:
“This unjustified tax on the airline sector (which has been heavily loss-making for the last two years) will be damaging for Hungarian tourism and the economy, which is dependent on air carriers to provide connectivity, tourism, and jobs.”
“This ill-timed and ill-advised ‘extra profits’ tax which inexplicably compares the loss-making aviation industry with hugely profitable oil and energy companies, has instantly made Hungary uncompetitive and less attractive to airlines and tourists.”
At the same time, Ryanair and the Hungarian Government are embroiled in a legal battle over a $780,000 fine that Hungary has imposed on the airline for raising prices in response to the tax, as the airline included HUF 3,900 (EUR 9,89) in the price.
As a result, a consumer protection investigation was launched and a fine was imposed on Ryanair due to the transfer of the departure tax, which gained significant national attention.
As a result of this, Ryanair has decided to cancel the following destinations:
Additionally, the following seven routes out of Budapest Airport had their frequencies slashed:
Accompanying the news, Michael O’Leary added, “We regret these route and flight cuts which are caused solely by the stupid and illogical decision of the Hungarian Govt to impose an “excess profits” on the loss-making airline industry, which now makes flying to/from Hungary more expensive and less competitive.”
Having said that, the next question which arises is, will capacity be moved elsewhere?
In response to the new tax, Ryanair claimed that it would be forced to move growth capacity to countries that are working to restore traffic, as hinted by O’Leary during one of his statements.
“Applying an “excess profits” tax to the loss-making airline sector in Hungary is inexplicable and only succeeds in raising flight costs to/from Hungary when other Central European airports have lower costs and no idiotic “excess profits” tax either.
These routes and flights will be switched to other lower-cost neighboring countries like Slovakia, Austria, Croatia, and Romania, none of which have any idiotic ‘excess profits’ tax on loss-making airlines.”
The flights have not been rescheduled yet, and passengers have to be informed where the alternative flights might leave from, as O’ Leary said, “All Hungarian passengers affected by these W22/23 route closures and frequency cuts from November will receive email notifications in the coming days, offering them full refunds or alternative flights to/from lower cost airports than Budapest for W22/23.”
However, this is not the first time Ryanair will be taking such a step. Recently, the airline responded to higher taxes and fees by redeploying capacity and completely closing its Frankfurt Airport (FRA) base.
Although things were a bit simpler and easier for Ryanair in this situation as it could swap routes over to Frankfurt Hahn Airport (HHN), located two hours away from Frankfurt. However, in the case of Budapest Airport, there is no such quick alternative.