Wizz Air slows its capacity recovery, cushioned by cash
After years of double digit growth, Wizz Air's seat count dropped by 43% in the first 10 months of 2020. This compares with a 55% capacity drop for all of Europe.
Wizz Air returned capacity more aggressively than the market when it emerged from its grounding in the Jul-Sep quarter. However, the ultra LCC has applied the brakes following renewed lockdown and travel restrictions, and capacity is now below the European average as a percentage of 2019 levels.
In spite of reduced near term capacity plans, Wizz Air expects there to be opportunities in the crisis. Its fleet will increase by 13% in FY2021 and more than double by FY2027. Its seat share has grown in its Central/Eastern Europe core market and it is opening 13 new bases across Europe, from the UK to Russia. Further new markets will be added by Wizz Air Dubai, which now expects to launch in Dec-2020.
Moreover, Wizz Air can afford to wait out any extension of the period of weak demand. CEO József Váradi has said that its cash balance is enough to last for two years, even with a full lockdown and no flying.
Summary
- Wizz Air returned capacity faster than the market in the Jul-Sep quarter, but is now below the European market as a percentage of 2019 levels.
- Ryanair was the only leading European airline group with a better Apr-Sep operating margin than Wizz Air. Wizz Air has the strongest liquidity.
- Wizz Air's capacity plans are reduced, but it foresees opportunities in the crisis. Its fleet will increase by 13% in FY2021 and more than double by FY2027.
- Wizz Air Abu Dhabi is operationally ready, but its launch has been pushed back to mid Dec-2020.
Wizz Air's growth continued double digit in the first two months of 2020
For a number of years Wizz Air has been one of Europe's fastest growing airline groups, pursuing double digit growth in seat numbers in every year from 2014 to 2019.
This included 20.2% growth in 2018 and 14.4% in 2019.
In the first two months of 2020, Wizz Air's seat growth accelerated to 19.8% year-on-year (Jan) and 26.1% (Feb).
However, the COVID-19 crisis sent capacity tumbling by 34.1% year-on-year in Mar-2020. This restricted seat growth in calendar 1Q2020 to just 3.1%.
The second calendar quarter of 2020 was one of near-total fleet grounding for Wizz Air: its seat numbers were down by 88.5% in 2Q2020, similar to the cut in all European airline capacity in that quarter.
Wizz Air returned capacity faster than the market in Jul-Sep quarter
However, Wizz Air returned capacity much more aggressively than the rest of the market in calendar 3Q2020, when its seat count was down by 28.4% versus a 60.5% decline across the European market.
Wizz Air Group: year-on-year seat growth
|
Calendar period |
Seat growth |
|---|---|
|
1Q2020 |
+3.1% |
|
2Q2020 |
-88.5% |
|
3Q2020 |
-28.4% |
|
Oct-20 |
-55.3% |
European capacity reached peak recovery in Aug-2020. In the week of 24-Aug-2020, total seat count in Europe was 45% of 2019 levels; for Wizz Air it was 84%.
At that stage, the only top 10 airline group in Europe with a higher percentage of 2019 capacity was S7 Airlines Group, with 88%, buoyed by the strong domestic market in Russia.
Europe: top 10 airline groups by seat capacity, Aug-2019 and Aug-2020
|
Week of 26-Aug-2019 |
Week of 24-Aug-2020 |
|||||
|---|---|---|---|---|---|---|
|
Rank |
Name |
Total |
Rank |
Name |
Total |
Percentage of last year |
|
1 |
3,973,897 |
1 |
2,195,235 |
65% |
||
|
2 |
3,402,873 |
2 |
1,351,437 |
55% |
||
|
3 |
3,249,473 |
3 |
1,273,741 |
56% |
||
|
4 |
2,460,086 |
4 |
1,148,489 |
35% |
||
|
5 |
2,294,582 |
5 |
1,087,414 |
27% |
||
|
6 |
2,122,261 |
6 |
989,985 |
47% |
||
|
7 |
1,485,099 |
7 |
933,329 |
63% |
||
|
8 |
963,806 |
8 |
812,998 |
84% |
||
|
9 |
915,912 |
9 |
494,016 |
70% |
||
|
10 |
905,802 |
10 |
S7 Airlines Group |
423,674 |
88% |
|
For all of Aug-2020 Wizz Air's seat numbers were at an average 80% of 2019 levels. However, this fell to 60% in Sep-2020, and just under 45% in Oct-2020.
As a percentage of 2019 capacity, Wizz Air is now below the European market
According to data from CAPA/OAG on airline schedules and seat configurations, Wizz Air Group has 27% of its 2019 seat capacity in the week of 9-Nov-2020. This is now slightly below the European market average of 30%.
Among the top 10 airline groups in Europe ranked by seats for this week, only Lufthansa Group and IAG have a lower percentage of 2019 capacity in service.
Europe: top 10 airline groups by seat capacity, Nov-2019 and Nov-2020
|
Week of 11-Nov-2019 |
|
Week of 9-Nov-2020 |
|
|
||
|---|---|---|---|---|---|---|
|
Rank |
Name |
Seats |
Rank |
Name |
Seats |
Percentage of last year |
|
1 |
3,362,260 |
1 |
960,822 |
39% |
||
|
2 |
2,653,878 |
2 |
798,719 |
46% |
||
|
3 |
2,487,915 |
3 |
654,645 |
51% |
||
|
4 |
2,099,605 |
4 |
639,055 |
30% |
||
|
5 |
1,741,018 |
5 |
537,450 |
16% |
||
|
6 |
1,521,788 |
6 |
500,563 |
19% |
||
|
7 |
1,271,969 |
7 |
412,241 |
64% |
||
|
8 |
882,189 |
8 |
327,426 |
37% |
||
|
9 |
738,310 |
9 |
S7 Airlines Group |
285,613 |
81% |
|
|
10 |
674,860 |
10 |
199,274 |
27% |
||
Ryanair the only leading European airline group with a better Apr-Sep operating margin than Wizz Air
In the first six months of Wizz Air's FY2021 financial year (which will end in Mar-2021, so the first six months was Apr-Sep) the group lost EUR243.1 million, compared with a profit of EUR368.8 million in the same period a year earlier.
Revenue slumped by 71.8%, to EUR471.2 million. However, ancillary revenue held up better, falling by 62.3%, to EUR269.4 million, and accounting for 57% of the total.
The group's pre-exceptional operating result was a loss of EUR147.4 million, versus a profit of EUR412.4 million last year.
In absolute terms, Wizz Air's operating loss worsened from EUR55 million in its first fiscal quarter to EUR92 million in its second. However, the operating loss margin improved from -187.4% of revenue in the first quarter to -20.9% in the second.
Comparing this most recent quarterly operating margin with those reported by Europe's big five airline groups places Wizz Air in second place. Ryanair achieved a positive operating margin of 1.0%, but the other four had margins in the range of -50.0% to -104.9%.
See related report: No summer for Europe's big 5 airline groups. Ryanair best positioned
Wizz Air has strongest liquidity among European airlines
Although Wizz Air's achievement in containing its loss to a relatively low figure by comparison with its revenue is creditable, the most important financial measure to ensure survival in a crisis is cash.
On this basis, Wizz Air remains the best placed European airline group.
It reported a total cash balance of EUR1,560 million at the end of Sep-2020, not much less than the EUR1,588 million it had at the end of Jun-2020 and slightly higher than EUR1,496 million at the end of Mar-2020.
Since Mar-2020 Wizz Air has consumed cash in its operations and in capital expenditure (although capex has been reduced). However, it has raised cash through the sale of fixed assets, through refunds on advances for aircraft and, mostly, on new loan funds raised.
Wizz Air's EUR1.6 billion cash balance at the end of Sep-2020 is equivalent to 57% of last year's revenue, or 208 days. On this metric, it is ahead of all of the big five European groups - even Ryanair, which had 52% of last year's revenue in cash at the end of Sep-2020.
The group has said that in the event of a full grounding its operational cash burn would be approximately EUR70 million per month until the end of FY2021.
This means that its cash balance should last a very considerable length of time, even after also taking account of capital expenditure and servicing of debt (Mr Váradi has estimated two years).
Europe's leading airline groups: available liquidity as a percentage of 2019 revenue*
Wizz Air's capacity plans are reduced, but it expects opportunities in the crisis
Wizz Air has scaled back its capacity plans in the light of renewed travel restrictions and lockdown-like rules in a number of European countries. It is focusing only on flying that makes a positive cash contribution.
If current restrictions continue through the winter, it expects only "minimal" operations, as it will concentrate on protecting its liquidity.
Nevertheless, the group continues to regard the crisis as an opportunity.
Wizzair's market share has grown…
In the Jul-Sep quarter of 2020 the airline had a seat share of 23% in its Central/Eastern Europe core market (according to a graph in its quarterly results presentation of 5-Nov-2020).
This was up from 18% in FY2020 and 16% in FY2019 (although this increase in seat share is based on a considerably smaller market).
Its share of LCC seats in Central/Eastern Europe was 49%, compared with 40% in FY2020 and 39% in FY2019.
Wizz Air also increased its seat share in UK, Austria and Italy.
Wizz Air Group: seat share in selected European countries
..and it is opening new bases across Europe
Wizz Air has announced 13 new bases, where it will allocate 29 aircraft.
These bases span the width of Europe from west to east, with countries including the UK, Russia, Italy, Germany and Norway. Notably, it is entering domestic markets in Italy and Norway for the first time.
The 13 new bases are Doncaster, London Gatwick, Catania, Milan Malpensa, Larnaca, Lviv, Tirana, Bacău, Dortmund, St Petersburg, Oslo, Trondheim and Bari.
Wizz Air plans a 13% increase in its fleet in FY2021
According to the CAPA Fleet Database, Wizz Air Group has 132 Airbus narrowbodies at 9-Nov-2020: 72 A320ceo, 41 A321ceo, 13 A321neo, and six A320neo aircraft.
It also has orders for 255 new aircraft for delivery until 2027. The group's fleet plan reported in its 5-Nov-2020 results presentation aims for a total of 137 aircraft at the end of Mar-2021.
This target has increased from 131 planned in early Jun-2020 and represents a 13% increase in Mar-2020, in spite of the negative impact of the COVID-19 pandemic on demand.
The fleet will more than double by FY2027
The fleet plan aims for 270 aircraft by the end of Mar-2027, which has been scaled back from 295 planned in early Jun-2020.
This still represents a double digit annual growth rate (12% pa) in the number of aircraft between FY2020 and FY2027, and a more than doubling of the fleet from its Nov-2020 size.
Of the 255 aircraft on order, 221 are for A321 types, and the fleet plan envisages the proportion of seats that will be operated on these larger aircraft growing from 47% in FY2020 to 88% in FY2027.
The growth in average aircraft size is a key part of Wizz Air's strategy to lower unit costs.
Wizz Air Group: fleet plan to FY2027
Source: Wizz Air results presentation, 5-Nov-2020.
Wizz Air Abu Dhabi launch pushed back to mid Dec-2020
The group's new subsidiary in the United Arab Emirates, named Wizz Air Abu Dhabi and established in partnership with Abu Dhabi Development Holding Company, received its AOC in Oct-2020.
However, a 14-day quarantine requirement on arrivals into Abu Dhabi has delayed the planned launch of operations from mid Nov-2020 to mid Dec-2020.
Wizz Air Abu Dhabi's first routes are expected to be from Abu Dhabi to Alexandria, Athens, Bucharest, Budapest, Cluj, Katowice, Kutaisi, Larnaca, Odessa, Sofia and Yerevan.
Wizz Air Abu Dhabi MD Kees Van Schaick has said its that its "initial network is balanced between GCC countries, Northern Africa and our traditional markets in Europe".
According to the CAPA Fleet Database, Wizz Air Abu Dhabi has two new Airbus A321neo ACF aircraft, both owned by the company.
Mr Van Schaick has said that there is potential for a fleet of 50 or more aircraft within the first five years of operations: "If you look at the growth of Wizz Air since its inception, we believe there is the potential to emulate that here given the underpenetrated ULCC market".
Wizz Air's confidence is well founded
In May-2020 Mr Váradi told a CAPA Masterclass that Wizz Air would recover from the coronavirus crisis in around one year, compared with two to three years for the airline industry as a whole.
Since then, Wizz Air's capacity recovery at first surged ahead, but has eased back more recently. This demonstrates the airline's ability to flex its operations according to demand, but raises at least some doubts that a full recovery is possible inside a one-year time frame.
Nevertheless, Mr Váradi appears to be sticking to his view that Wizz Air will recover in one year (although perhaps that year has been reset to start now, rather than back in May-2020). However, his prediction for aviation industry recovery has lengthened from two to three years to five to 10 years, according to media reports.
The time frame (and definition) of Wizz Air's recovery can be debated further. However, Mr Váradi's confidence in his ultra low cost, cash rich, nimble operation seems well founded.