Few airlines in Europe were more exposed to the industry’s biggest headwinds in the final three months of 2023 than Wizz Air.
That showed through in its financials. Chief executive Jozsef Varadi was keen to stress during an earnings call on 25 January that fundamentals – including travel demand – remain strong, but he acknowledged that “tricky” market conditions contributed to its net loss for the period of €105 million ($115 million). Still, it remains on track for a full-year profit.
But how is Wizz handling the challenges and what longer-term impacts might they have?
Two headwinds stand out. First is the Israel-Hamas war and the second is the grounding of A320neo-family aircraft because of issues with their Pratt & Whitney PW1100G engines.
Regarding the first issue, Wizz notes that flights to Israel have been suspended since October and that demand to Jordan and Egypt has also been negatively affected. Its solution has been to “successfully redeploy capacity”.
While, therefore, there was a financial impact from the suspension of services – an impact it declined to detail during the earnings call, unlike rival EasyJet – it had by 1 December managed to redeploy capacity amounting to around 9% of its available seat kilometres, mainly to Spain and Italy.
It also restarted flights to Moldova in December, having suspended them in February on security grounds.
Wizz plans to relaunch some Israel services from 1 March, joining a growing list of operators in doing so, while it also expects some improvement in markets around Israel heading into the key summer season.
Absent other factors, the wider sector’s lack of capacity and strong air travel demand mean there has rarely been an easier time to redeploy aircraft. But there, too, Wizz is exposed.
The P&W engine issue means it will have around 40 jets on the ground by the end of the current quarter. That is a significant proportion of its nearly 200 aircraft.
Amid that challenge, it expects capacity growth to be flat across the next fiscal year, beginning 1 April 2024. That is a significant development for a carrier that has made growth its main mission over the past few years.
It has at least managed to ensure that capacity does not fall, using measures such as new aircraft deliveries – some 30 A321neos are due to arrive in the 12 months from 1 April – the extension of leases on 13 existing aircraft, the dry leasing of three more jets and increased utilisiation of its fleet.
With those measures in place, no bases will close, Wizz insists.
In financial terms, the carrier adds that it is receiving appropriate compensation relating to the grounding.
So, what comes next?
In capacity terms, competitors do not have it easy, either. Ryanair, for example, is relying on deliveries from Boeing’s troubled 737 Max programme and EasyJet has relatively moderate expansion plans. Furthermore, Varadi believes Airbus is better placed than Boeing to meet its delivery commitments.
And Varadi insists Wizz retains its status as a serious player in the low-cost sector with unit costs that are the envy of many peers.
“This is a cost game, not a revenue game,” he says of what he sees as the commoditised European short-haul sector.
At the same time, Wizz has cash and the incoming aircraft to resume its expansion once the engine issues are addressed.
Therefore, the next fiscal year might be a frustrating one in growth terms, but the pause is likely to be a short one.
“Wizz has a ruthlessly efficient operating model, with the lowest unit cost in the sector and is able to go wing-to-wing against any other player in Europe,” said analysts at Bernstein in a report released earlier this month.
“This advantage will only increase in the coming decade thanks to the A321neos entering the fleet, which have 22% more seats and [circa] 15% lower fuel burn than an A320[ceo].”