Budapest-based LCC Wizz Air has taken a number of initiatives during the COVID-19 pandemic to safeguard the company’s cost position and balance sheet of €1.5 billion ($1.7 billion) in cash, one of the strongest in the airline industry.
How much capacity is Wizz Air currently operating? We are flying at 10% right now and I hope we can scale up soon. We are burning around €70 million ($79 million) per month if we don’t operate a single flight; this is all cash burn with no operation. But we have €1.5 billion of free cash, so we are good to go for 24 months without a single flight. Many carriers don’t have any money to invest into anything, but we are benefiting from this situation because we have the financial strength to expand. Our interest is in capitalizing on our investment. Also, our new airline, Wizz Air Abu Dhabi, is on track to begin selling tickets shortly and launch operations in August.
Airlines in Europe are cutting routes, many of which may not reopen. Does this create more opportunities for Wizz Air? I think there is a structure emerging from the coronavirus, given our financial strength and economic efficiency in terms of cost production; we are going to benefit from that situation. Many airlines are reducing capacity, cutting workforces, canceling aircraft orders and retiring aircraft. We are one of the very few airlines that is doing the exact opposite—we are continuing to grow and bringing in new aircraft to make our fleet younger. All this gives us opportunities we have never thought about before—such as new bases in Milan Malpensa or Larnaca, Cyprus, with many more to come. The market is increasingly desperate for capacity, but we have capacity to bring. This is a huge opportunity for Wizz Air.
What is an example of a market you had not thought about before? I think this is Larnaca, which came out of the coronavirus crisis. The Cyprian government was the first to attract tourism and put measures in place, as well as start an economic stimulus program to attract airlines like ourselves. Our Larnaca base is a byproduct of the coronavirus.
Is Wizz Air getting more requests from governments and regions? Absolutely, this is just the beginning. Essentially, you don’t see how bad it is in the industry now. It is one thing to stop an airline and it is another thing to restart and operate it given the current circumstances. I believe the real hard times in the industry will come in the next six to 12 months. Wizz Air is already seeing many requests from regions and governments that are experiencing capacity reductions by their airlines. They are very eager to receive us as an airline that could bring efficient capacity and contribute to their regions. But the hard times will come again because of the economic recession caused by the coronavirus. We know consumers will be migrating down from high- to low-cost services, and we are going to benefit from that. Efficient airlines like Wizz Air will come out of the coronavirus crisis as a winner. So, we are seeing many requests for our flights and will see more in the coming period.
You are also launching a new base in Milan Malpensa, but Wizz Air left Frankfurt. Are those big airports a risk? Frankfurt was not very successful. We are going to be measured and focused, but we are also very open-minded and are listening to every airport and government. Of course, the terms have to be right they must support our business model, especially when it comes to operational costs. This is our opportunity. I believe and argue that we have been waiting for a recession—not necessarily from coronavirus—but a recession to reshuffle the whole industry and ensure that efficient airlines like Wizz Air come out structural winners.
Many big airlines like Lufthansa or Air France are requesting state aid. Is this fair? Of course it is not a fair game; it distorts a level playing field and creates a situation that again puts the governments back in the industry as shareholders and owners, and that’s never good because that destroys the market and the spirit of free competition. We are starting to go back 10 to 15 years. And how many times have we had to bail out Austrian Airlines, Alitalia? Lufthansa went begging to the government only a few weeks after the crisis started. The only good news is that maybe taxpayer money will go to those airlines to keep management ambitions in check. They cannot do crazy things like just growing at any expense. They have to contract capacity; they have to restructure the airline. But at least, we will see more national behavior by these carriers.
Are LCCs more able to restart operations compared to the complex systems of hub carriers? Absolutely. There are two major factors: We are a short-haul, point-to-point carrier and we are able to recover consumer demand issues quicker than long-haul carriers because their short-haul networks are also designed to feed the long-haul sector, which recovers later than short haul. And second, we are in a financial position to be able to invest. This is the time and there is a vacuum in the marketplace; this is the time to step up.
Wizz Air wants to increase ancillary revenue by one euro per passenger per year. Ancillary is strategically important to us. It is actually mainstream—we are earning 45% of revenues based on ancillary. Wizz Air is very keen to enhance ancillary revenue production by bringing in new product or service initiatives; we are also increasing penetration of existing initiatives. Today, Wizz Air has one of the highest ancillary revenue proportions of any airline.
How long does it take for Wizz to make a new route economically successful? We will break even in a year and be profitable in two years, given the times we are in today. So, the first year is a real investment under the current circumstances. But within a year, we will become cash positive and we measure the business on the basis of cash support to profitability at this point of time.
Airbus must admire you because you are still taking all your announced aircraft deliveries. We must be their biggest customer now because we are the only one taking all deliveries. We have 268 aircraft on order throughout 2027 and we have 22 short-term deliveries until June next year. We are taking all those aircraft. We are also upgauging A320neo orders to A321neos. We need to look beyond the current period. If you base your life and your decisions today on what you are experiencing today, you are going to make a lot of bad decisions for the future. We need to see life beyond coronavirus.
How do you see the industry changing now? The whole industry should come back to pre-2019 levels in about three years; that’s going to be the recovery level. But certain players like Wizz Air will recover quicker. There will be inefficient airlines that have to cut, but they will survive because of government bailouts, even though they will be smaller. But then there are airlines like Wizz Air that are self-sufficient and have the cash to get through this and to grow. They will change our impact on the market. And there are airlines in between, which are not financially efficient and will not receive government bailouts; most of them will go bust.
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