Wizz Air CEO Warns of Capacity Overreach in Europe

Photo credit:  Wizz Air

Wizz Air bucked the industry trend with its forecast that something aside from the Covid-19 pandemic could disrupt airlines next year. On Thursday, CEO József Váradi warned of overcapacity in certain European markets as discounters vie for share and legacy carriers defend their turf in the recovery.

“If airlines will have to fight for their incumbent positions and they will decide to operate capacity not needed for the market, that may result in overcapacity,” he said about summer 2022 during the Budapest-based carrier’s September quarter results presentation. Yet, in a defense of Wizz’s own growth strategy that could see it 50 percent larger next summer than it was in 2019, Váradi argued that the discounter would have a “strategic advantage” if such a scenario played out due to its low costs and young, efficient fleet.

But the truth behind Váradi’s comments are that no one really knows what summer 2022 will look like. Despite warning of overcapacity, Váradi also expects strong travel demand in Europe on par with 2019. Executives at Air France-KLM, Lufthansa Group and Ryanair have all echoed that outlook, though none of the three carriers — which flew almost a third of intra-Europe capacity prior to the crisis, according to Cirium schedules — warned of overcapacity next summer.

And nearly every European airline plans further capacity recovery next year in line with returning travelers. Air France-KLM could recover to more than 90 percent of 2019 capacity by mid-year; Lufthansa Group to 80 percent; and, while not providing a specific forecast, Ryanair Group CEO Michael O’Leary said on November 1 that he expects a “very strong recovery in short-haul intra-European air travel.” However, overall European capacity likely will be down year-over-three-years given the cuts and closures at a number of airlines, including Alitalia, Flybe, Norwegian Air, and TAP Air Portugal.

And one only needs to look as far as this past summer to see how quickly the pandemic can lay the best laid plans to waste in just two words: Delta variant.

Overcapacity concerns are not stopping Wizz’s growth. In fact, Váradi said the airline would accelerate its expansion plans for by extending some aircraft leases and talking to Airbus about moving up deliveries of some of the 235 A320neo family jets it has on order. Wizz plans to fly 170 aircraft by September 2022, or a more than 40 percent increase compared to the start of the pandemic in March 2020. Growth markets remain the same as before: Italy and the UK, as well as Abu Dhabi, Austria and Ukraine. And Wizz is also growing in many of its core Eastern European markets.

“We are upping the game,” he said. “We are adding more capacity and planning more growth.”

But the outlook is not all positive. After posting a €57 million ($66 million) operating profit in the September quarter, Wizz anticipates a loss in the December quarter. Váradi attributed the forecast loss to lower vaccination rates in Eastern Europe, fuel, and foreign exchange headwinds, and lower productivity of both its fleet and staff than pre-pandemic. These challenges are forecast to continue into the March quarter, though executives declined to say whether Wizz would be profitable then.

Wizz management also faced questions over the airline’s operations. During Ryanair’s results presentation earlier in November, O’Leary called out Wizz for repeatedly cancelled flights or postponing the opening of new bases. He said the Hungarian carrier would “struggle” in Italy as its “labor model simply is not sustainable in the Western European market.”

Váradi responded saying that, while Wizz experienced “a few weeks of turbulences,” the issues were behind it. He added that none of the issues were due to crew or staffing issues, but related to a number of wet-leased aircraft that the airline since has removed from its fleet.

“Our competitors like talking about this, but we are definitely in a much better shape than some of the U.S. peers like Southwest or American Airlines, who will be constantly struggling with resources, getting crews, getting the rosters going through,” said Váradi referring to the recent weekend meltdowns at both U.S. carriers.

Wizz is actively hiring staff in preparation for summer 2022 operations, with 1,000 employees joining its roster during the September quarter.

In the first half of Wizz’s fiscal year that ended in September, the airline posted a net loss of €121 million. Revenues were down 47 percent year-over-two-years to €880 million and expenses down 26 percent to €932 million. Unit revenues decreased 23 percent while unit costs excluding fuel increased 24 percent over the same period. Wizz flew 144 aircraft at the end of September compared to 119 two years ago.