Wizz Air is fully focused on improving operational performance in its next financial year 2024, which starts on April 1. It wants to get utilization hours back to pre-pandemic levels and eliminate any cost disadvantages to get unit costs down, in order to return to profitability for the full year, while at the same time building more buffers into its operations. This comes after a difficult FY23, for which it announced a €33.5 million net profit for Q3 today. Wizz Air focused on getting back to profitability in FY24.
The Q3 net profit (October-December) compares to €-267.5 million in the same quarter of FY22, but it is largely down to the revaluation of US dollar lease liabilities as the euro got stronger against the dollar. By comparison, Q2 saw a €68.2 million profit and currency headwinds produced an HY1 net loss. EBITDA was roughly break even at €-2.8 million versus €-87.5 million and is now at €220 million for the first nine months.
Revenues were up to €911.7 million from €408.4 million in Q3 last year. Passenger revenues grew 186.3 percent to €464.7 million from €162.3 million, with ancillary revenues were up to €447 million from €246 million. Revenues were 43 percent higher than in Q3 FY20, with ticket unit revenues up four percent and ancillary unit revenues up seven percent. Wizz Air benefitted from higher ticket prices and was also able to charge higher rates for longer routes that it was flying, notably to Saudi Arabia. The load factor was 87.3 percent.
Operating expenses were €1.067 billion, up from €622 million from Q3 FY22, of which €490.6 million is from fuel costs and €241.5 million from airport handling costs. It resulted in an operating loss of €155.5 million versus €213.6 million. Costs per available seat kilometer (CASK) excluding fuel improved to €2.49 from €2.67 in Q3 FY22, but is still higher than the €2.26 in FY20.
Building in buffers
After suffering from various operational issues in previous quarters, Wizz Air was able to get the schedule back on track by improving completion rates and reducing disruption costs by nineteen percent quarter on quarter. It is here that Wizz wants to make further improvements in FY24 coming April. Aircraft utilization was 10.31 hours in Q3 but should get to 12.30 hours in HY1 this coming summer period. Capacity should be up by thirty percent over FY23 and load factors should be back at pre-pandemic levels or around 93 percent, with regularity reaching 99.5 percent.
But Wizz Air is learning from its operational problems and is building more resilience with a variety of measures, including hiring and training more staff, allocating more spare aircraft and stand-by crew, and investing in infrastructure and IT. Higher crew productivity, fewer flight disruptions, an optimized network, and increased fleet-gauge with more 239-seat Airbus A321neo’s should bring CASK back to pre-pandemic levels. Wizz expects to grow its fleet from 177 in Q3 to 185 aircraft coming summer, but this depends on Airbus being able to deliver on time. Financing for all aircraft deliveries this year has been secured.
Market share
In Q3, Wizz Air grew its market share in its core market in Central Eastern Europe to 27 percent from eighteen percent in Q3 FY20. It expanded activities in Rumania (53 percent market share), Hungary (33 percent), Georgia (23 percent), Albania (56 percent), Bosnia and Herzegovina (40 percent), and Serbia (18 percent), but lost market share in Austria (five percent, minus one). Doing strongly is Tel Aviv, with a capacity double that of FY22.
Italy remains a very strong market with a ten percent share, up from three percent in FY20. Wizz will reposition some of its based aircraft to Rome and Milan while reducing capacity at Bari. CEO Jozsef Varadi said that his airline is benefitting from long-term agreements with Italian airports and from competitors reducing some of their capacity.
The Middle East is getting ever more important for Wizz. After launching services to Jeddah and Riyadh in Saudi Arabia from Italy and Austria, the carrier will add routes from fourteen countries to Saudi Arabia out of Europe and add a new destination (Medina) out of Abu Dhabi with Wizz Air Abu Dhabi.
The subsidiary is outpacing expectations and performing very well for an airline that was launched only in January 2021. It has grown its market share from 0.5 to three percent and load factors are building nicely. Wizz Air Abu Dhabi doubled its fleet to eight aircraft in Q3. This is set to double in fifteen months, said Varadi. It is offering now more than twenty routes and 1.7 million seats out of Abu Dhabi, where it is the second biggest airline in seat numbers behind Etihad. Revenues are expected to quadruple this Q4.
Overall, Wizz plans to grow available seat kilometers by 35 percent in HY2 of FY23 and by thirty percent in HY1 of FY24. Of this, 79 percent is coming from increasing frequencies, sixteen percent from joining existing airports, three percent from new airports in the same country, and only two percent from new destination countries.
Outlook
The airline expects to end the year with a loss in FY23, having recorded a €-642.5 million full-year loss in FY22. But Varadi expects to return to “significant profitability” in FY24, subject to geopolitical issues, ATC capacity, the Covid situation, and the success of implementing operational and cost improvements. “I would highlight the strategic advantages we have over the market: we have the most renewed fleet, we are upgauging, flying the highest-density aircraft that benefits unit costs and production. Together, these productivity gains will offset the headwinds we are seeing on inflation and elsewhere,” said Varadi.
Wizz Air ended the quarter with €1.367 billion in liquidity, of which €1.238 billion in free cash. The airline didn’t take on any new liquidity, “so the business last year essentially was cash flow break-even,” Varadi said.
