Wizz Air CEO József Váradi is looking to accelerate aircraft deliveries and is considering new orders, viewing the post-COVID downturn as a unique opportunity to buck the market.
“We have been waiting for this moment for 10 years,” Váradi said, speaking at the release of Wizz Air’s fiscal 2020 first quarter results (Q1) July 29. “In 2008-2009, we didn’t have the capacity or the scale to benefit from those circumstances. We have a significant balance sheet and a significant pile of cash available to the business. This is our time.”
The comments came as the Budapest, Hungary-based LCC posted a €56.7 million ($66.5 million) underlying net loss for Q1, excluding a negative hit from fuel hedges. Unsurprisingly, given the COVID-19 crisis, it marked a steep decline from the €72.4 million net profit that Wizz posted for Q1 2019. Turnover for the three months ended June 30 was down 86.9% at €90.8 million, based on a 93.2% drop in passenger numbers, while costs narrowed 67.1% to €197.1 million.
“We are not immune. The industry is in deep crisis and we are no different from that. We will suffer short-term pain. We are able to cope with the situation, probably better than our competitors, but at the same time we are not managing the business on a short-term basis,” Váradi said.
Wizz Air has taken a bullish approach to the COVID-19 crisis, continuing to operate flights every day. “We carried 700,000 passengers with a load factor of 56%, at a time when European air travel came largely to a halt,” Váradi said.
The company also ended the quarter with €1.6 billion in liquidity. “Cash burn has come in, in the end, better than expected and we have been able to preserve our liquidity quite well,” Váradi said.
Unlike other airlines, Wizz Air continues to take new aircraft deliveries and has no plans to defer its orderbook.
“It’s not only that we are not deferring aircraft deliveries, but we actually are sourcing more aircraft for summer 2021,” Váradi said.
Wizz Air’s overall orderbook has not changed, but Váradi said there has been some “ironing out” of delivery schedules, because Airbus is now able to “step up.”
This will see Wizz add a net total of 39 aircraft by the end of the 2022 financial year, growing its fleet from 121 to 160 aircraft. By then, 79% of Wizz Air’s fleet will be A321s.
“New aircraft deliveries are not only important for growing the business, but also extremely important for creating a cost-competitive advantage,” Váradi said, particularly as rival airlines will be retaining older aircraft, causing their unit costs to “shoot up significantly.”
Váradi said it is “very likely” that Wizz will go back to the manufacturers for another order. However, he remained cautious. “I don’t want to create a perception that Wizz is heavily negotiating on an aircraft order. This is not true,” Váradi said.
Wizz Air’s aircraft order was negotiated under the auspices of U.S.-based private-equity fund Indigo Partners, which has stakes in several other LCCs. Wizz has a direct commitment with Airbus, but the deal creates scope to move the orders between Indigo Partners airlines.
“Each of the airlines is taking a view on life,” Váradi said. “What we are looking at is managing our own supply of capacity.”
Wizz is already operating more than 70% of its 2019 capacity, compared with an industry average of 40%. However, Váradi acknowledges that market conditions remain “far from normal.”
“It’s more of a rollercoaster than we were expecting. It’s going to be a bumpy road, with quite a lot of unpredictability and uncertainty going forward,” Váradi said.
To protect against that uncertainty, Wizz is diversifying its business, moving further into markets like western Europe and Abu Dhabi, where it is launching a new airline in October.
“We are moving the network design, not just in our existing network, but to new markets with more consumers, to make the business more diversified on a bigger scale,” Váradi said.
Wizz Air also tends to attract young people, who are less affected by the crisis, and migrant travelers, who are already beginning to return. “We think there is significant underlying demand there, but of course, it is not the same as it was last year.”
As one of the few airlines still pursuing aggressive expansion, Wizz is being approached by most of the airports in Europe. The LCC is evaluating new long-term airport deals. It has already announced 18 new bases and launched more than 200 new routes.
“We’re not just trying to recover our existing business, but trying to build a new business,” Váradi said. “Diversification is a very important strategy.”
Wizz Air has freed up 22 aircraft to establish the new bases by trimming frequencies across the existing network by 20-25%.
“We haven’t closed a single base. We are maintaining our network footprint,” Váradi said. “We don’t get tempted by the consumer opportunity. It needs to come hand-in-hand with the cost base, otherwise we simply won’t do it. We are not flying for the sake of flying; we are flying for cash contribution.”
In the short term, Wizz’s strategic focus will be on managing uncertainty, by maximizing liquidity and returns, while minimizing costs. This winter, Wizz still plans to double its underlying ancillary revenue from €0.50 to €1.00 per passenger, but the season is expected to be cash-neutral. In the longer term, the focus is on widening the gap with its competitors.
Over the coming years, Wizz is planning to grow its business by 40-50%. Váradi believes the company will have a “free run,” as other airlines come to terms with the new market reality.
“This is a structural move, from our perspective. We’re going to be much more formidable, much more impactful in the industry and we’re creating our scale and franchise through this experience,” Váradi said. “In commodity markets, so long as you’re the lowest cost producer, you should do fine. I don’t think we’re running uncalculated risks.”
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