This was a good week for Wizz Air to launch a distracting €499 “all you can fly” annual subscription offer. Otherwise attention might have been focused on the Hungary-based carrier’s plunging share price. Remarkably, the budget airline, once judged to be “the last great growth story in European aviation” by one City analyst, has seen its shares descend from £55 in 2021 to £12.36, virtually the lowest level since listing in London almost a decade ago.
Or remember that it was only three summers ago that Wizz made a cheeky takeover approach to easyJet. The proposal never got close to the departure lounge – easyJet knocked it away with ease and launched a rights issue to clear its pandemic financial strains – but, back then, Wizz was the larger company by a distance. It sported a stock market value of £5bn versus easyJet’s £3.25bn. Position today: £3.4bn plays £1.1bn with the hierarchy reversed.
Some of Wizz’s woes can be put down to bad luck. War in Ukraine has hampered a carrier concentrated on flying to and from central and eastern Europe. And the bigger blow – and the reason for a heavy profits warning a fortnight ago – was engine recalls by its supplier, Pratt & Whitney, that grounded some of the planes. The airline is entitled to compensation, but not enough to offset the disruption to schedules and the need to lease replacement aircraft. Operating profits for the last quarter fell from €80m to €45m.
But some of the troubles are clearly self-inflicted. In the pandemic period, Wizz made a bad error by not hedging against a rise in the price of aviation fuel (cheap at the time). It was then caught out by the surge in oil prices after Russia’s invasion and was forced to rethink.
Hubris was also seen in the highly ambitious growth plan set out as the market recovered from Covid. With the rest of the industry in cautious mode, Wizz moved westwards in Europe, which has brought it on to Ryanair’s routes. As always seemed entirely predictable, the market leader has responded aggressively on prices to defend its patch.
The Barclays aviation analyst Andrew Lobbenberg, in a note on Thursday that predicted a further profits warning from Wizz, argued that the shares would benefit from “more modest growth ambitions” and predicted an exit from the Middle East. He also thinks the company should cancel the big order of Airbus A321XLR aircraft that underpins the expansion plans of the chief executive, József Váradi, which include, potentially, routes to India. For those aircraft, “we see no obvious attractive opportunities for a ULCC [ultra low cost carrier] business model,” said Lobbenberg. His target for the shares is a mere £10.
Other analysts are more bullish, it should be said – Bernstein is still looking for £50. But a minor miracle would be required at this point for Váradi to hit his £100m jackpot under a controversial bonus scheme that imagined a £120 share price by 2028. Right now, investors would probably settle for a glimpse of predictability in earnings.
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As for the €499 (£427) “all you can fly” promotion, it has grabbed attention but contains so many conditions (you can only book 72 hours before departure; there’s an £8.90 booking fee on each flight; and extra luggage isn’t included) that its appeal may be limited to a small pool of flexible flyers. The share price says Wizz’s challenges go much deeper.