Investment Ideas

Wizz Air earnings soar on geographical expansion, what’s next?

Wizz Air continues to deliver from its geographical expansion. 

Jamil Jolil
Posted Thu 4 June 2020
by Jamil Jolil

Wizz Air Holdings, PLC (WIZZ) has had a negative year to date. The share price of Wizz-Air is down more than 10% (Blue) since the start of the year, compared to the (Red) FTSE 100’s 17% fall (Illustrated on the chart below). During this period, Wizz-Air has outperformed the benchmark index.

With the outbreak of the coronavirus, Wizz-Air was one of the companies, which was hit hard from the coronavirus outbreak. This is because with lockdown’s enacted across the world businesses and consumers stopped using airlines to travel. As a result, investors became uncertain as to whether the company could continue their expansion operations, reflected with the share price falling 65% in Q1 (illustrated on the price chart above).

In the latest earnings report, Wizz-Air delivered on both the top and bottom line. With the company continuing on its expansion of operations and boasted “an industry-leading passenger growth rate of 16%”. Wizz Air reported that revenues rose to 2.76 billion Euro’s, which reflects a 19% rise from 2.32 billion Euros from the same period a year ago. Moreover, the company reported net income rose to 294.1 million Euro’s, which reflects a significant rise from 128.9 million Euros from the same period a year ago. The rise in revenues came as the company saw a 16% increase in passenger traffic up to 40 million, from 34.6 million during 2019. Moreover, ancillary revenue per passenger increased by 14% to 31.3 Euro’s per passenger, which reflected a 32% increase to 1.25 billion Euros. Wizz-Air’s CEO, Jozsef Varadi, said: “We continued to stimulate demand with our ultra-low fares across our growing network which revenue. Our ancillary revenue growth of 31% was outstanding and now makes up 45% of total revenues”.

Investors were also looking forward to Wizz-Air explaining how its expansion plans where coming along. The company said it has continued its expansion beyond Europe, reflected with its fleet increasing from 9 to 121 aircraft, and with over 47% of seats now served by the more cost-effective A321 type aircraft. CEO, Varadi, also explained how the company was going beyond its initial expansion network in Albania, Cyprus, Italy and Ukraine with the company in the process of launching Wizz Air Abu Dhabi in late 2020.

Going forward, the company said it was not in a position to give guidance “due to the continued uncertainty regarding coronavirus, but it remains confident in its ability to thrive in the long-term”. CEO, Varadi, also explained how Wizz-Air “has taken various initiatives during the Covid-19 pandemic to safeguard the company’s cost position and excellent balance sheet with EUR1.5 billion of cash”. Moreover, “Wizz Air’s market positioning and focus on costs means that we will emerge from this crisis as an even more formidable business”. Consequently, although 2020 could see pressures, in the long-term the company’s focus on geographical expansion could see it remain competitive against rivals.

Implications and bottom line? Wizz-Air’s expansion has seen the company increase its passenger base by a significant margin to 40 million users. Moreover, revenue and profit in the latest earnings report have continued to climb in the double digits. However, with the outbreak of the virus, Wizz-Air is expecting fewer consumers to travel in 2020. Illustrated on the chart below, Wizz-Air share price has been operating on an uptrend. Will the share price continue to rally to all-time highs? Or will concerns of how the coronavirus will impact the company see the price fall? The upcoming weeks will be a key watch.

Sources: Wizz Air, Benzinga, Financial Times.

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