Business 30 January 2019, 12:17pm

Where has the profit of Wizz Air gone?

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The number of passengers carried by Hungary-based no-frills airline Wizz Air grew by a double-digit figure again in the third fiscal quarter ended 31 December 2018, the carrier announced on Wednesday. Its revenue jumped by more than 20% year on year, while skyrocketing costs prevented it from posting significant profits. The company’s share price dropped some on the back of the release of the quarterly earnings report.

Double-digit revenue growth

Wizz Air carried 8.1 million passengers in the third quarter ended 31 Dec 2018, 14% more than in the base period. As a result of that, revenues also increased. Ticket revenues rose 20.4% yr/yr and ancillary revenues were up 22.3%.

The importance of ancillary services, such as checked luggage, priority boarding, etc. for discount airlines is attested by the fact that these contributed 43% of total revenues for Wizz Air in Q3. Total revenue per ASK (average seat kilometre) rose 5.6% yr/yr, partly as a result of the new baggage regulations introduced in November.

Capacity growth measured in terms of ASKs was 15.0% and the number of seats available increased by 12.3%. The load factor increased to 91.4% from 89.4%.

Costs up sharply

Operating costs increased sharply in October-December. Staff costs were up by more than 40% and fuel costs also increased by almost 40% in annual terms. Maintenance materials and repairs cost Wizz Air 21.4% more than in the base period. The major increase in staff costs was caused by an increase in pilot salaries (14% on average) and one-off start-up costs relating to Wizz UK (which was launched in relation to Brexit), while the increase maintenance costs stems mainly from fleet growth. Fuel expenses went up due to rising kerosene prices.

Wizz Air fleet growth, Source: Wizz Air presentation

Due to the leap in costs, Wizz Air’s profit has almost disappeared.

On an operating profit level the airline broke even, while net profit came in at EUR 1.7 million thanks to net foreign exchange gains. Winter is traditionally a weak period for carriers, yet Wizz Air managed to record EUR 14.6 mn operating profit and EUR 14.0 m net profit in the October-December 2017.

Guidance confirmed

Following a profit warning issued in November, Wizz Air has confirmed its targets for the year ending on 31 March 2019. The company maintained its net profit guidance range of between EUR 270 mn and EUR 300 mn for the full year, but said CEO József Váradi noted that “where we will be within this range will depend on the extent of March yield pressures which will be affected year-on-year given Easter falls after the financial year-end in April and external factors such as Brexit uncertainty."

In FY2019 the airline expects 17% capacity growth (ASKs), a 1 percentage point rise in its load factor, total CASK (cost per average seat kilometre) to be up 5%, ex-fuel CASK to be down 1% and RASK to edge up by 2.5%.