Austrian Airlines bailout protected by taxes and fare floor

The Austrian government plans to set a EUR40 minimum air fare and to increase passenger taxes on short and medium haul flights. These two measures will disproportionately hit low cost competitors to Austrian Airlines, which has just become Europe's latest beneficiary of state aid.

The growth of LCC competition to Austrian Airlines and its parent Lufthansa Group at Vienna was gathering pace before the COVID-19 crisis, and this threat is likely to intensify.

The Ryanair subsidiary Lauda and Wizz Air have grown rapidly to become the biggest airlines at the airport outside the Lufthansa Group in 2019. Wizz Air and Ryanair Group are also now among the most vocal European airlines on seizing growth opportunities in the post-crisis recovery.

The combination of new taxes and the planned EUR40 air fare floor appears calculated to force LCCs (Ryanair Group and Wizz Air in particular) to raise ticket prices or to operate at a loss in Austria. This may well be subject to legal challenges.

Although dressed up as an environmental measure, the Austrian government's plans look like protectionism.