Wizz Air Faces Challenging Post-COVID Ascent
Wizz Air CEO József Váradi.
Low-cost carrier Wizz Air is gradually clawing its way back from the devastating blow dealt by the pandemic to the entire travel industry. The company is still in the red but trying to make the most of the situation through upgrades and by introducing new destinations to its international network.
The no-frills airline seems well on its way back, along with much of the air travel industry grounded by the pandemic lockdowns. The company’s revenues surged 134% to EUR 3.896 billion as passenger numbers climbed 88% to 51,072,000 in its business year that ended on March 31.
Nonetheless, the company is still sustaining losses: Wizz Air booked a EUR 535.1 million negative result for the period. Losses narrowed from EUR 642.5 mln in the previous business year as margins improved.
The company’s CEO, József Váradi, estimates that net profit for the business year that started on April 1 will come in at between EUR 350 mln and EUR 450 mln. However, this is all “subject to the absence of adverse exogenous events such as an incremental impact from the war in Ukraine, delivery delays, or similar.”
Statistics show that European air passenger traffic is currently 7.6% below pre-pandemic levels. The Airports Council International, an umbrella organization for airport authorities, has released data showing that only five European markets have fully recovered: Albania, Bosnia-Herzegovina, Cyprus, Greece and Turkey.
But it seems that the trajectory Váradi has laid out is yet to convince investors. Wizz, listed on the London Stock Exchange, has seen a steep drop in its share prices. Having reached its peak in 2021, trading has since seen stock prices halved.
Equally, analysts appear unconvinced of a favorable outlook for the company, at least for now. Fitch Ratings revised the company’s outlook to “negative” in its latest review, reflecting expectations of pressures on margins on the back of the worsening economic outlook and the rising cost base, including labor and fuel. Unfavorable foreign-exchange movements are exacerbating the latter.
Macroeconomic instability, coupled with high inflation in Europe, could suppress demand recovery, posing further risk to yields and prolonging the time necessary for Wizz Air to achieve credit metrics, Fitch stated in its justification.
Moody’s Investors Service similarly downgraded Wizz, in its case to a “stable” outlook, citing the company’s very weak point-in-time credit metrics for an investment grade rating.
“The absence of capital measures to protect the investment grade rating, the group’s aggressive medium-term fleet strategy, as well as more uncertainty regarding the pace of recovery in an increasingly weaker macroeconomic environment, have also played a role in our assessment,” Moody’s said. On the positive side, the rating agency noted that Wizz Air’s rating remains supported by the company’s superior cost base, very efficient fleet and strong liquidity profile.
Accordingly, Wizz stock isn’t a popular pick for investors right now, with advisors giving the shares a “sell” tag.
The company is trying to recover its position through expansion. Váradi said that increasing demand for services indicates that there is a good chance to exceed the pre-pandemic performance significantly. The CEO noted Wizz Air is now at around 95% of its pre-COVID load, in line with the overall European statistics, and is eyeing a 160% increase based on available forecasts.
Expanding in Poland
Wizz announced in May the addition of a 30th aircraft to its Poland fleet, raising the number based at Warsaw to 11. Apart from a recently announced route to Agadir from Warsaw, the airline will launch eight additional routes from regional airports. These include Gdansk to Copenhagen, Tenerife and Alicante, Katowice to Copenhagen and Alicante, Wroclaw to Valencia and Malaga, and Krakow to Valencia. There is now also a Wizz flight to Zvartnos International Airport in Yerevan, Armenia, served by an Airbus A321neo aircraft.
Váradi stated that Wizz Air has plans to connect its flight network to India while negotiations are underway to facilitate a planned entry to the airspace of Pakistan. Also as part of eastern expansion, Wizz Air Abu Dhabi launched its latest route to Erbil in the Kurdistan Region in Iraq. Flights to Erbil will commence on October 6 and operate twice weekly on Monday and Friday.
For the time being, the rise in overall demand is a boost for low-cost carriers since legacy airlines’ pricing is still considerably higher, and is actually increasing, driven by cost factors like inflation and carbon emission fees. The large number of passengers looking to travel will likely accept a low-cost option, according to analysts, even if that too is significantly higher than the EUR 5-10 ticket prices typical in the heyday of no-frills flying.
Váradi and Wizz Air will have to continue keeping their eyes on main rival Ryanair, which has already announced ambitious plans for the near future. On July 20, it announced that in the first 12 months after the end of the war in Ukraine, it would offer more than five million seats to and from and within Ukraine, building up to more than 10 million seats over a five-year period.
Ryanair says it will base up to 30 new Boeing 737 MAX aircraft, worth more than USD 3 bln, at the three main Ukraine airports in Kyiv, Lviv and Odesa. Once the shattered infrastructure has been restored, it also plans to return to Kharkiv and Kherson airports.
Ryanair boss Michael O’Leary also stated that his company had made significant commitments to expand its fleet of Boeing craft, which will allow it to double its passenger numbers in the near future and will also mean that other airlines will have to wait their turn if they want to buy new planes since the manufacturer’s capacities are already contracted until about 2030.
This article was first published in the Budapest Business Journal print issue of July 28, 2023.
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