Under normal circumstances, Wizz Air’s full-year results would have been cause for celebration with record profits. Sadly, these numbers mostly relate to the pre-coronavirus world and so aren’t a true reflection of the business today.
Wizz Air has been relatively upbeat throughout the pandemic, implying that its strong balance sheet would give it an advantage over many financially weaker rivals and put it in a position to increase market share post-crisis.
Last week it announced expansion plans with four new bases in places including Italy and Cyprus and the launch of 50 new routes. Having established a strong position across large parts of Europe, it is pressing ahead with plans to launch operations in Abu Dhabi as part of a strategy to expand across the Middle East, Africa and the Indian subcontinent.
“Maintaining growth plans may well serve the business well in the long term, it just needs to get through the short term without any major damage to earnings which is going to be hard.
“It makes 45% of revenue from ancillary sales which are the extra costs to the customer on top of ticket prices such as baggage fees and food and drink during a flight. This is going to be vulnerable area for the business as a result of restrictions on how people will fly.
“Airlines are likely to stop serving food and drink on flights where possible as part of coronavirus safety measures.
“The European Union Aviation Safety Agency, the EU’s air safety body, recommends cutting down on cabin bags to speed up boarding and reduce contamination risk. Airlines are being encouraged to incentivise customers to do this, so companies like Wizz Air may have to cut charges to put bags in the hold, thus lowering an important source of income.
“The other issue for Wizz Air is going to be strong competition for flights once lockdown restrictions are properly lifted. There is likely to be a period where airlines slash ticket prices to fill planes as much as possible.
“It’s no wonder that Wizz Air is not providing guidance on earnings for its new financial year as there is so much uncertainty over how and when the travel sector will recover.”