Airline Leader Interview Wizz Air CEO József Váradi

Transcript

Richard Quest:How many times in the last month have you read that you're going to go bankrupt?

József Váradi:Oh, so you are talking about a guy who probably would do a lot better job by doing Irish weather forecasts. than predicting what's going to happen to Wizz Air multiple times. But I would offer 2 fact lines to consider. First of all, when I look at Wizz Air's liquidity, we are sitting on €2 billion cash. This is cash, not all sorts of calculated money. This is one of the highest liquidity ratios in the industry relative to our size. Second matter is that we are flying the most fuel-efficient aircraft on the planet. We are 80% fleet-wise AC21neo that burns the least fuel, and we are 70% hedged at $700 a metric ton for the next 6 months versus the market, which is around $1,500 at this point in time. So you can make your own conclusions.

Richard Quest:So as we look at the crisis, and I'm not going to spend the whole time talking about it, as you look at this particular crisis, What measures are you taking to adapt either the network, the operations, the pricing?

József Váradi:We are taking fundamentally 2 measures. One is cash is king. So we are very cash-focused. We know that under circumstances what the industry is facing at this point in time is It's all cash because, you know, airlines don't struggle with the lack of profitability. They struggle from the lack of cash. So we are very much cash preserving. Again, we are starting with €2 billion. And secondly, we are taking costs down to any extent possible. So we are taking a lot of measures on saving costs. We don't spend what we don't have to spend. We are down to the bare minimum. I don't think, to be honest, that you can do much about the fares because you are subject to the market. You are just one constituent and you are competing with all other airlines. So whatever the market gives you as revenue, as fare, you take it. But what you really control is your cost and your cash flow.

Richard Quest:But as I was looking, as I was flying here this morning, all the various airline measures, those who've taken 5% out of the schedule, those who've delayed, those who've moved routes or whatever, Are you doing any of those things?

József Váradi:I'm not taking capacity out because I think the other guys will take capacity out. Actually, that will create an opportunity for me. As we say, you know, when you are in the jungle and you bump into a bear, you don't have to run faster than the bear. You have to run faster than the other guy next to you. And I think this is what we are trying to do. So we think that because all others have higher costs, they are more under pressure to remove capacity. They are underhedged versus our positions. And they overburn versus our aircraft. So actually, this is creating a strategic opportunity for us.

Richard Quest:So you're 70— did you say 70% hedged?

József Váradi:Yeah, 70% hedged for the next 6 months.

Richard Quest:Right. So you've got 30% that's—

József Váradi:that's right.

Richard Quest:That's at market. And if you were to start losing that, you'd be looking to lose that first.

József Váradi:Of course. So if— I'm pretty sure your next question is going to be, okay, what if fuel supply gets short? And my next question is fuel. Yeah. And obviously, I personally, I don't think this is going to happen. But if that happens, of course, you would be eliminating that kind of a 30%.

Richard Quest:So your suppliers have said, Joe, you're okay for the next 4 weeks or next 6 weeks?

József Váradi:4 weeks ago, I was told that Europe is good for another 4 weeks to go. 4 weeks later today, I'm told Europe is good for another 4 weeks to go. So I'm pretty sure it's going to be the same line 4 weeks from now. So I think, I think given that jet fuel prices at this moment, $1,500 a metric ton, I mean, you can make a lot of money on it. So jet fuel traders will find alternative solutions to supply fuel to the European market. They may pick it up in the United States, they may find other sources. But I don't think that everyone is just waiting to see the disaster to come. We will overcome this.

Richard Quest:I sat this morning, I flew in this morning, I sat at Gatwick and I just watched your planes take off, EasyJet's planes take off, everybody. It's the reality of watching the operations versus the academia of sitting here talking about it always feels a bit strange that even as you and I are talking about Wizz, how many planes have you got in the air at the moment, do you think?

József Váradi:Well, we have 1,000 flights a day, actually more than 1,000 flights a day. So you can, you can run the numbers. So basically, we operate a flight every single minute.

Richard Quest:Right. So while we're talking, all of those planes will be taking off and around Europe. But you are— in the last year, let's put aside the war and the current crisis. You'd already started to refocus. Wizz, hadn't you, in the last year?

József Váradi:Yes, so we have taken a number of actions, and probably the most visible one was the closure of Abu Dhabi. We had an Abu Dhabi subsidiary.

Richard Quest:You look, by the way, you look brilliant in hindsight for doing that. I mean, you clearly knew.

József Váradi:Oh, of course, we are very smart, of course, and that's why we made a decision. Now, I mean, luckily, in a way, you know, due to other issues like regulatory matters and hot and harsh environment with regard to the engine operation forced us to take that position. I see now we are benefiting from that. But over the last 2 years, I would say we have been very, very focused on streamlining our network, refocusing our business on the right geographies, and getting the right costs for running this business. But I have to say that you cannot disassociate from the fact that this industry and Wizz Air in particular have been hit hard by various external factors. You know, the war in Ukraine, the Hamas-Israel war, the GE9F engine inspections and resulting groundings. They were— these events were disproportionately hitting us versus the rest of the market.

Richard Quest:Right. But what they prove is that in this industry, the exogenous event, it's always there. It always comes. And it's always the least thing that you expected. At its peak, how many AOGs did you have?

József Váradi:So at the very worst point, we had 45 aircraft on the ground.

Richard Quest:45?

József Váradi:45 aircraft of a fleet of at that time around 240 airplanes. So basically, I had 20% of my fleet grounded. Today, the situation is a little better. We have 265 airplanes in the fleet, and I only got 30 airplanes on the ground. So improving. And I think in—

Richard Quest:30 aircraft still sitting at various airports.

József Váradi:Yes.

Richard Quest:And doesn't that make you angry or pissed off or whatever?

József Váradi:Of course I'm pissed off. But what can I do? I mean, this is the business what we are dealing with. This is a situation what we have to adapt to. You know, this engine is screwed up by the, by the manufacturer and we have to go through a process whether we like it or not. And this process keeps dragging us for 4 or 5 years.

Richard Quest:Now, the good news is that probably Hang on, we've got a problem with your microphone, which is a little—

József Váradi:Yeah, I think it's back now. But in about 18 months from now, we're going to be fully ready to operate and fly the entire fleet.

Richard Quest:Do you regret buying those engines?

József Váradi:I don't. I don't. And as a matter of fact, it must have been cheap. Yeah, yeah, you think I'm totally stupid and lost my mind. Actually not, because just think about it this way. This is a hiccup which should have been avoided by the industry. I think too many regulatory shortcuts. The regulators should have been a lot more scrutinizing. The manufacturers should have been a lot better of managing their quality control systems. But this engine has a long-term potential in terms of fuel burn, in terms of technological advancements. And if you look at engine lifecycle over the course of 20, 30 years, I still think this is the right engine for us. Secondly, and I think that matters under the current circumstances, we negotiated a flight hour agreement with Pratt Whitney. So my maintenance cost is totally protected versus all the others who are subject to the market and the market is completely screwed. Because if you look at maintenance costs currently in the industry, they are 2x, 3x versus what it used to be 3 years ago, 4 years ago. So I think I'm going to benefit from this engine longer term and I'm going to be protected on its maintenance costs.

Richard Quest:So you— was it a mistake to go into Abu Dhabi? I mean, with hindsight, was it a mistake?

József Váradi:Yes, probably it was. But under the circumstances, when we made a decision, the decision looked good and we felt good about the decision, good about the factors, what we considered. But yeah, we didn't foresee the engine breakdown. We didn't foresee the kind of the regulatory discretion we had to, to deal with in the end because of some personal changes in the, in the system. You learn lessons. But Richard, you know, if an airline makes no mistake, That airline is not pushing the boundaries. We are pushing the boundaries. We will always make mistakes. You try to learn from your mistakes, you try to correct those actions, but you have to make mistakes because if you don't make mistakes, you don't do enough.

Richard Quest:Right. But then let's talk about your operation that you're planning to do in Israel.

József Váradi:Right.

Richard Quest:For obvious and understandable reasons, you've postponed that for the time being. Are you still minded to do it?

József Váradi:If we get the right deal, Under the right conditions and within the right circumstances, yes.

Richard Quest:The other airlines, of course, they are spitting feathers at you coming in. They say that you don't have the same— I mean, you have— you're a secure airline and you're a safe airline. I'm not suggesting anything like that, but you do not have the same responsibilities that they have as domestic carriers.

József Váradi:Yeah, but I don't have the same privileges what they have, that they get bailed out every 3 years. By the Israeli government either. So I think I'm running my own business based on the operating model and principles of, of Wizz Air. They are— these are different from, you know, the models and principles applied in the marketplace. But this is just different. I think I can create value to the market. I can crash prices. I can make flying affordable and more accessible to, to people. In Israel, and this is the underlying value what I contribute. You're—

Richard Quest:you started in Budapest. In fact, of course, your history is out of the failed flag carrier, and then you came out of that and started Wizz Air. Hungary has just changed— well, I was going to say it's changed political direction, but it hasn't really. With the new prime minister, it's sort of just tempered it back again. Do you see? First of all, what do you make of the political change in Hungary, and how can that affect you? Do you think?

József Váradi:Yeah, I don't think it affects me. Visa is always pro-government. Whoever is on government.

Richard Quest:You see, you mentioned Britain and suddenly that goes off.

József Váradi:Oh, I got switched off. Yes.

Richard Quest:Victor was listening to you.

József Váradi:Probably. Probably so. Wizz Air is always pro-government. We are never pro-party or pro-political force. Whoever is on government, we try to have a collaborative relationship with the very government. That's not changing here either. The good news is that already the new prime minister candidate said that no fancy flights by the Hungarian government, the whole Hungarian government is going to fly Wizz Air. He said it 2 days ago. Actually, I'm very hopeful and that was a good propaganda for For us, I think in terms of the political change, it's fascinating. I think it is fascinating how quickly and how deeply, you know, systems can change in no time. I mean, everyone believed that a system was built over 16 years which would never change, and, you know, it changed in 16 minutes.

Richard Quest:Right, but it could create an entire boom Tourist boom for Budapest.

József Váradi:Yeah, and it will, because I think, I think the problem in Hungary is that the Hungarian economy needs to regain its competitiveness. It needs to come to market. And I hope that this is going to happen under the new government and that will boost the economy. It will boost tourism, it will boost air travel, and we could be a contributor to it and a beneficiary of that.

Richard Quest:Why have you not gone medium haul out of somewhere like Budapest, which has limited— almost actually has almost none, um, you know, say flights to New York. Or I'm not— I'm not suggesting you suddenly go promiscuous and fly anywhere around the world, but I'm talking about targeting a Norse-type operation where you say Out of places like Budapest, we believe that there is value to, say, New York, Miami, or Bangkok.

József Váradi:And this is, this is a bit like playing soccer and basketball. So there is a ball here, there is a ball there, but the rules of the game are very different. And flying kind of our model up to 6 hours, this is based on very different rules and principles versus flying longer hauls like over the Atlantic to the United States. We think we can create impressive differences with value and competitiveness against the industry on short-haul, medium-haul, but we can't replicate that for long-haul because customer needs are different, market circumstances, competitive natures of those markets are different. We are just sticking to what we are good at. That means that we are not going to do everything. That's not the objective.

Richard Quest:How often does one of your route planners or one of your new staff say, Yeah, we really should look going to fly to New York. Well, have you looked about the— how often does somebody suggest it?

József Váradi:Oh, they are not there to come to me with that. They are too afraid.

Richard Quest:Talk about then where you grow. You've, you've cons— you've consolidated back in a sense to your core markets, um, of Central Europe, Central and Eastern Europe, um, which are now being attacked by Ryanair in a much more aggressive fashion than before because Michael wants to expand as well, and this is a fertile area for him. Um, I, I don't for a second believe you can't compete, but it's getting rather ugly.

József Váradi:Well, I mean, it depends how you look at it. I mean, I think Ryanair is a great competitor, and I would give that credit, uh, to them. And when you compete with them, actually, they make you a better airline, they make you a better business. Because you have to match their cost, otherwise you're going to be running uphill. I think they are achieving that and we are learning from that and we are improving on that basis. I think this has the potential to be a lot more of a love brand, people who positively want to fly Wizz as opposed to defaulting on Ryanair because no one wants to fly Ryanair. I think Ryanair is sufficiently hated by everyone being a consumer or being airports or whoever they are, but we can be the, the wanted brand, the liked brand, but delivering the same cost, delivering the same fares to the market.

Richard Quest:Right, but you know, the analogy I always use when looking at the low-cost market is, let's take for example EasyJet. And I always think of EasyJet as being the John Lewis of aviation, if you know what I mean. You know, where did you buy that from? John Lewis. Oh, of course. You know, it just made sense because it was, it was the right price in the right place at the right time. No one necessarily will always madly fall in love with it, but it'll do the job very nicely. Macy's, thank you very much. I think of Ryanair as being sometimes the one that you'll take when you've got no other option. What should I think of Wizz Air as being?

József Váradi:I think what you should think of is that it's certainly not Louis Vuitton, but I think we are a very solid, credible airline in terms of operations. We fly better aircraft than anyone else. I think we fly better crew than anyone else. And we are the airline that completes most of the flights in Europe. And we are one of the better airlines in terms of on-time performance. So if you really want to have no fuss, you know, reliability, get from A to B, Wizz Air is a good choice. And you can choose Wizz Air.

Richard Quest:Right. But Michael always says to me, ah, well, you would say that because you're wanting those expensive seats at the front. You want your first-class business. He always accuses me of that, which is perhaps true. But how can you make the low-cost experience pleasant? And note I say pleasant. This morning's flight on EasyJet was relatively pleasant. There was a bit of nonsense of, you know, I had 3 bags. I had my wheelie, that, and I had another bag. And I ended up stuffing one bag into the other bag just because gods, they wouldn't let me on. That sort of thing, you just, you want to say to the woman at the desk, you know what I'm going to do? I'm going to stuff it in, I'm going to walk past you, and I'm going to take it out again. What have we achieved by this?

József Váradi:Look, I think you have to take a segmented view on life. The evolution of the low-cost business model is that you are having a lot more segmented approach to different customer needs. So there are certain people who want to have more comfort like you. You may want to have the first row, you may want to have legroom, you may not have your bag settled, and you don't want to think about it. You have to have a product to that. And there might be people who are short on money and they just want to have a seat no matter what, and they, they don't, they don't travel like a Christmas tree, so they are not in need of bags and, and, you know, anything like that. So I think it is, it is segmentation.

Richard Quest:Right.

József Váradi:And you can, you can achieve a lot with that.

Richard Quest:Right. But, but what's fascinating is the way in which you are now, you know, and I've followed your airline a lot over the years. You are now segmenting a lot more. You're not— you're being much more sophisticated. For example, this, dare I say, business— what would you call it— product that you've got where you're now offering—

József Váradi:what are you offering? Wizz Biz.

Richard Quest:Go on, what are you offering?

József Váradi:Yeah, but what I'm offering is basically the same what you get from Lufthansa. You get the same seat, you get the same legroom, probably even, even a bit more than that. You get your place for your bags, and even you can order some food if you want to do that.

Richard Quest:And a spare seat.

József Váradi:Yes, exactly, exactly. And you have a spare seat, and no one is going to bother you, and you're going to be paying probably a quarter of what you would pay to Lufthansa.

Richard Quest:So now that's interesting because now you are upping the ante at the low-cost level and you are nibbling and starting to go at the full-service level. The, the purist would say you're going to screw yourself because you're fiddling with the model.

József Váradi:Oh, why would I do that? I'm not touching the aircraft. I'm not touching the configuration of the aircraft, which is the inherent operational efficiency of the business model.

Richard Quest:No, you're meddling with the algorithm and the concept.

József Váradi:Well, but I'm, I'm doing it at the same cost as otherwise for more revenues, what I'm trying to achieve with this, with this segmentation. I don't think I'm adding any cost to the system.

Richard Quest:How is it working?

József Váradi:It's working fine. I mean, it depends on the route. I mean, obviously, the longer you fly, the more comfort need you have. The shorter route is, the more commodity the product becomes. But I think we will figure this out, and it is a real need of the market that— I mean, we have become an 80 million passenger airline. You can imagine with 80 million people, we fly all sorts of people for all sorts of purposes. Do you say—

Richard Quest:when you say 80 million, I mean, that's more than most of the legacies.

József Váradi:More than most of the legacies, more than all of the legacies in Europe.

Richard Quest:And yet you don't seem— you don't punch the weight, is it? And, and it's sort of— when I say you fly under the radar, you know what I mean? You sort of— and that's always been the history of Wizz since the day you started, by the way. You've just nibbled away, grown away in all your individual markets, getting bigger and bigger and bigger. Other people make more noise and you just continue to grow. So where do you grow next?

József Váradi:Central and Eastern Europe remains core to us, and we think this is the right market. Central and Eastern Europe continues to converge economically. GDPs grow faster than that of Western Europe. We're seeing that there is a lot more growing middle class in Central and Eastern Europe which convert into travelers, air travelers. At the same time, we are also pretty big in Italy. This year, we are exceeding the size of ITA. We carry more passengers from Italy than ITA, the national carrier. This is not all just Central and Eastern Europe, but our core focus is Central and Eastern Europe.

Richard Quest:What do you make of ITA? And Lufthansa Group and the whole way all that's coming together?

József Váradi:I think it's a bad deal for the Italians, probably a little better for Lufthansa. We know how Lufthansa operates, you know, when there is a time to make money, they take it. When they lose money, they go to the government to fund it.

Richard Quest:So do you have a view? I'm going to be— I'm going to be neutral. Do you have a view on who should buy TAP?

József Váradi:Doesn't, doesn't really matter, to be honest. I don't have a big, big view. I don't think it is going to fundamentally change the, the world. I mean, personally, I think the way how aviation evolves in, in Europe is that you have these kind of anchor legacy carriers who will consolidate the legacy industry around. And it is only 3 groups and doesn't really matter who takes TAP. And then the next question is who's going to take LOT Polish Airlines, etc.? I don't know. But it is a lot more important what is happening on the low-cost airline side because legacy carriers don't deliver any growth in Europe any longer. The entire growth in Europe comes from the low-cost carriers. And really, it is down to 2 airlines. It is a lot more interesting dynamics how—

Richard Quest:Which 2?

József Váradi:I don't know. I know one of them is sitting next to you, and probably you can figure out who the next one is. This is Ryanair and Wizz Air. I think these 2 airlines will dictate the dynamics of the industry for the foreseeable period.

Richard Quest:You're being charitable about easyJet.

József Váradi:easyJet is going over. I think easyJet is completely stuck in terms of growth. They have become very high cost. I think they lost their mojo, whether they want to be an airline or a tour operator. I think they will have to figure themselves out, but I wouldn't expect EasyJet to do anything in terms of growing Europe and their European business and contributing to the growth of Europe in that regard.

Richard Quest:So really, I mean, you've got the others, you've got Jet2, you've got TUI, you've got the others, but, but you put them to one side?

József Váradi:I mean, these, these guys are fairly niche, very Particularly in terms of holiday focus, etc. But in terms of really pushing aviation, and this is very different from the United States, pushing aviation in Europe, that will come from 2 airlines, and we are one of them.

Richard Quest:It's fascinating because they say you're not. The other one says you're not.

József Váradi:But you should read the numbers.

Richard Quest:Go on.

József Váradi:Yeah, I mean, look at us. I mean, we are growing this year from 64 million to 80 million. passengers. I cannot talk about financial performance because we are in a closed period, but we are the most liquid airline on the planet, or one of the most liquid airlines on the planet. He may have wishlists and he may start managing his business against the wishes he's got. That's what happened in Hungarian politics when you start creating your own reality and that gets detached from the real realities. Just look at our numbers, read the numbers, and you can make your own conclusions.

Richard Quest:Okay, so I— oh, um, oh, wait a minute, there's a question here. Wizz Air, can you elaborate about expansion in Egypt?

József Váradi:I can. Uh, we like the Egyptian market. Uh, we're seeing that, uh, there is a lot of traction, um, especially, uh, for Central and Eastern European travelers, but not only, you know, UK travelers, Italian travelers, everyone.

Richard Quest:Right, but would you base in Egypt, or would you Just use your existing fleet into Egypt?

József Váradi:I think realistically we would be flying Egypt inbound as opposed to basing aircraft there. Again, Egypt is a hot and harsh environment, so that's not good for the engines, but it's a good market with increasing attraction for our customers.

Richard Quest:How long are you going to keep going?

József Váradi:Well, when I started 22 years ago, I thought it would be 5, 5 years, maybe 7, but that was 22 years ago.

Richard Quest:By the way, I'll tell the story. I'll tell the story.

József Váradi:Please do.

Richard Quest:All right, all right. So I'm anchoring the morning business show, CNN Today, and they said to me, you know, you do aviation, so you're going to have this guy, József Váradi, is on the show. He's launching an airline called Wizz something. So he comes on the program And it's the launch day, you remember? And I finished the interview saying, József, thank you very much indeed. Do come back again next year if you're still in business. And you've never let me forget it.

József Váradi:Yes. And so one year onwards, so actually I got invited back by Richard and I said, screw you, I'm not going to go back to you. You were such a nasty guy. A year ago. But actually, I went back 5 years later, and I remember you came down to receive me, and I asked him, so what kind of questions will you ask me this time? And he said, no, no, don't worry, we're going to be talking about your growth and, you know, how important you are in Central and Eastern Europe, etc. So I'm sitting next to him, and all of a sudden the whole studio goes green. And then his first question is, how green of an airline are you? And we said, oh God, okay, it's going again, it's going again.

Richard Quest:How important is the green agenda? And when I say that, because you constantly talk about it, but what I like about the way you talk about it, you don't talk about it from a planet point of view. You talk about it because it makes economic sense for the airline point of view.

József Váradi:Actually, I think it is very important to Wizz. There is an element of sustainability being a byproduct of economic efficiency because we are buying the best aircraft, which happens to be the most sustainable aircraft. Beyond that, we also think that over time, consumers will choose airlines and experience on the basis of their commitment to sustainability. We have a company with average age below 30. We have an 80 million customer base with average age of around 30. These people think differently about life and environment than you or me or the Americans when you go there and they are driving tanks on the roads. It is important that we are also enabling sustainability to foster by putting private equity type of investments into ventures in Europe as well as in the United States. I think it is important and it will gain traction.

Richard Quest:The average age is 30, and between the two of us, I think we've raised the average age quite considerably.

József Váradi:Especially you.

Richard Quest:Thank you very much indeed.

József Váradi:Thank you.

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