Wizz Air is reducing its summer capacity growth by five percent to 25 percent, citing “continued infrastructure and supply chain limitations that are facing the industry.” This has all to do with the accelerated inspections of the Pratt & Whitney Geared Turbofan-powered Airbus fleet through September, the carrier said on August 3 in its Q1 FY24 earnings release. GTF issues force Wizz Air to cut back capacity.
The GTF impact is modest, says Wizz Air, with inspections of engines with suspected powder metal contamination in the high-pressure turbine disks initially affecting only twelve first-generation engines. This is based on what P&W has told the airline. The low number of engines will result in a small capacity reduction but that will have no impact on the profit for the airline’s Q2, which runs from July to September.
More engines could require inspections and repairs later on, as P&W has said that after an initial 200 GTFs under tranche 1, another 1.000 will likely need inspection in the first half of 2024 under tranche 2. How many engines are in tranche 2 and how long they will be away for shop visits has yet to be determined. P&W said last week that inspections in tranche 1 might take sixty days.
“At this time, we have limited information as to the scope of engine inspections in HY2 and highlight that our guidance of +30 percent higher ASK versus last year remains subject to further communication from OEM on this matter. Our growth plans continue to be supported by our fleet delivery plan, with more seats coming online in the balance of this fiscal year,” says CEO Jozsef Varadi.
He didn’t want to speculate on additional numbers of engines that might be affected. “Pratt said that in the best-case scenario, they might be able to come up with a designated shop program, so it wouldn’t affect the current operations of the engine shops. But this is not yet fully confirmed. Our assumption is that, whatever the completion of tranche 1 is, likely it is going to be back-to-back with tranche 2.”
Abu Dhabi re-fleets with V2500
Varadi added that it is not just the powder metal contamination issue that is hurting Wizz Air, but also the other GTF durability issues with the combustor and turbine blades in hot environments. This is particularly affecting Wizz Air Abu Dhabi, which operates in hot and sandy environments in the Gulf region. To reduce the risk, some GTF-powered aircraft in Abu Dhabi have been replaced with V2500-powered A321ceo’s that are more durable. Since May, four A321ceo’s are in service in the UAE to support six A321neo’s.
With ten percent of the GTF fleet grounded for engine repairs and with spare engine scarcity, Wizz Air has to stand in cue to get its repaired engines back. Being the single largest customer of the GTF, Varadi said that he expects “a very heavy compensation” from Pratt & Whitney, but this is subject to discussions.
Wizz Air originally planned to grow Q2 capacity by 35 percent but reduced this to thirty percent. It now goes down to 25 percent for HY1 mainly due to the GTF issues. Although the airline expects to deliver a thirty percent capacity growth in HY2 until April 2024, Varadi said that Wizz will take a conservative view of capacity planning into the coming winter.
Analysts were somewhat surprised by the capacity growth in HY2, which is the low season when airlines lose money, while at the same time, capacity is reduced during the remaining months of the profitable summer season. Varadi responded that he isn’t seeing a drop in demand going into the winter period. “I know there is a lot of chatter around about inflationary pressure, a recession coming, and consumer spending falling. But we aren’t seeing any of that. As a matter of fact, our bookings are up since last year, with higher yields and load factors. We are seeing a robust environment going forward.”
Back to profit in Q1
The Hungary-based ultra-low-cost airline returned to profit in Q1 (April-June), reporting a €61.1 million net profit compared to a €-452.2 million in the same quarter of FY23. This is in line with its target to return to profitability for the full year.
Revenues were up to €1.236 billion from €808 million, of which €688.2 million from tickets (Q1 Fy23: €392 million) and €548.4 million from ancillary revenues (€416.8 million). Revenues per available seat kilometer (RASK) were up nine percent to €4.19 cents. The airline carried 15.3 million passengers at a 91.2 percent load factor, which is nearing pre-pandemic levels.
Total expenses were up by 5.8 percent to €1.156 billion from €1.093 billion, but fuel costs were 12.7 percent lower to €443.7 million thanks to lower fuel prices and the benefits from 36 percent hedging. Cost per available seat kilometer (CASK) excluding fuel was €2.51 cents, down four percent year on year.
Wizz produced an operating profit of €79.9 million versus € -284.5 million last Q1. EBITDA was €236.7 million compared to €-154.4 million. The airline ended June with €1.794 billion in liquidity and €3.780 billion in net debt.
Operational stability
After numerous operational issues in previous quarters, Varadi was happy to report that Q1 was much better. Flight cancelations came down from 1.180 in Q1 2023 to 620 this first quarter. The flight completion rate was up 0.8 percent to 99.2 percent and fleet utilization improved 1.5 percent to 11.58 hours per aircraft. Wizz Air has recruited 1.860 new staff and is now employing 8.000 staff, double that of the pandemic level.
“Summer has been going according to plan. It is an improved operating environment, but not perfect, and we are a lot better prepared to deal with the consequences of the supply chain shortcomings,” Varadi said. “But we are still seeing air traffic management restrictions, imposing slots that are affecting our on-time performance and to some extent resulting in cancelations.”
Wizz hit a lot of flak last year for the way it executed its UK operations and compensated affected passengers after flight disruptions. The airline said last week that it has signed a deed with the Civil Aviation Authority (CAA) and made commitments regarding the handling of the claims. So far, completion rates in the UK have improved to 99.57 percent in HY1 this year. Varadi admitted that Wizz had been overwhelmed by the problems last year, but it has learned from them and invested in manpower and resources. The CEO doesn’t expect the issue to have hurt the reputation of the carrier in the UK.
For FY24, Wizz Air reiterates its guidance of a net profit of between €350 and €450 million.
