Wizz air down too much?

Wizz airlines is a low-cost carrier operating in Central and Eastern Europe (CEE) with a 21% share. As with most airlines it has been severely impacted by covid19 and now rising oil prices and the invasion of Ukraine, that represents 8% of revenue. However, its share price is down near doble that of peers Ryan Air and EasyJet (-45% vs -25%) as the market does not do a great job of distinguishing actual operating risk, in my view.

Up to end of March 2022 traffic was recuperating and more importantly, load factor is beginning to normalize. Wizz opened routes to Dubai in 2021 that help diversify revenue while Dubai – Moscow flight may see increased traffic on closed Russian – EU airspace.

Load factor (how full the airplanes are) below 60% generally leads to operating losses. Airlines are high fixed cost businesses, if the airplanes are full or empty, they incur the same operating costs, thus the fuller the better, especially in the low-cost model where airfare +bags can be a fraction of a legacy carrier.

Wizz is part of the Indigo portfolio of low-cost airlines (Volaris, Frontier and JetSmart) with pioneering experience and ready access to capital/debt if need be. The airline has an investment grade debt rating, a not so easy feat post Covid19.

While survival is assured and medium-term growth and return to profitability very likely, the short-term impact of spiking oil and dislocations caused by Ukraine invasion and ongoing tragedy, can keep Wizz shares down and volatile. Quarterly results will be key to improve investor sentiment.

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