Hungary Wizz Air annual profit more than doubles

16.5 million passengers

Passengers carried increased 18.4% year on year to 16.5 million in 2014, the airline reported on Wednesday. In the 2015 financial year Wizz Air generated revenues of EUR 1,227.3 million, up 21.3% yr/yr. These growth rates compare to capacity growth measured in terms of available seat kilometres (ASK) of 20% and seats of 17%.

The reported revenue causes a smaller upside surprise, as the consensus forecast (Reuters Thomson) was EUR 1.21 m.

Profit doubles

The profit for the year was EUR 183.2 million, and included a EUR 37.0 million net gain from unusual and exceptional items. Underlying profit totalled EUR 146 m, which corresponds to a 67% yr/yr growth. This also exceeded analysts’ expectation for a EUR 140 m profit.

The jump in profit is attributable to revenues rising in parallel with an increase in passenger numbers, and also to the impact of decreasing oil prices. Although lower fuel prices feed through to lower air fares, and the positive impacts on European carriers are muted due to the appreciation of the USD, Wizz Air’s fuel costs rose by less than its revenues. Fuel costs totalled 37.4% of total operating expenses, down from 40% a year earlier.

The other main driver of profit growth was improving profitability. Wizz Air’s operating profit rose to EUR 167.3 million from EUR 109.8 million and its operating margin improved to 13.6% from 10.9%. The carrier’s underlying profit margin went up 3.3 percentage points to 11.9%. This is outstanding in the industry. The ultra low-cost airline can show for a much stronger profitability than the average profit margin of its sector peers.

Wizz Air's Cost of Average Seat-Kilometer (CASK, excluding exceptional items, dropped 3% yr/yr in FY2015 to 3.61 euro cents; and ex-fuel CASK (excluding exceptional items) rose by only 0.5% to 2.26 euro cents.

Wizz Air attributed the outstanding profit margins by the following factors:

• the youngest fleet of aircraft;
• a strong point-to-point network;
• the highest aircraft utilisation;
• the highest staff productivity;
• one of the highest load factors;
• an “unbundled" product producing the highest ancillary income per passenger; and
• a group of reliable and efficient outsourced suppliers of key services.

This is how 2015 started, i.e. FY2015 ended

In the seasonally weak January-March period, Wizz Air posted underlying net loss of EUR 11 million, which is half of the loss incurred in the same quarter a year earlier. Revenues rose 19% to EUR 235 million. Seat capacity growth was 20%, load factor increased by 2.2 percentage points to 83.6%.

Growth to continue in 2016 too

Wizz Air plans to grow capacity, both in terms of seats flown and Available Seat Kilometres,(ASK) by around 17% in the 2016 financial year. This will be split broadly 18% in H1 and 16% in H2. The average stage length is expected to be in line with that of the 2015 financial year. A further modest rise in the load factor points to a total of 19.4 million passengers handled in the year as a whole.

Consistent with historical experience, lower fuel prices are feeding through to lower air fares, the company said but Wizz Air’s management still does not think that there will be earnings benefit from the decline in fuel prices.

Based on current booking trends management expects total RASK (Revenue of Available Seat-Kilometer) to decline by a low single-digit percentage in H1 and remains cautious regarding the H2 revenue performance.

Nonetheless, management currently expects a further significant rise in the Group’s profit for the year to a range of between EUR 165 million and EUR 175 million (excluding unusual and exceptional items), significantly ahead of the EUR 146.2 million figure achieved in the 2015 financial year. This would correspond to 13-20% yr/yr growth. Analysts’ consensus is for EUR 171.8 m profit for the current financial year.

Fuel hedge coverage is 69% for 2016 61% for 2017.

EUR 450 m cash

Strong operational cash flow and IPO proceeds contributed to year-end cash and equivalents of EUR 449 million versus EUR 186 million at the end of March 2014. Net cash generated by operating activities came in at EUR 174 m in FY2015.

For the full picture we need to highlight that according to analysts’ estimates, the company has major liabilities over operating leasing agreements, but these are ex-balance items and therefore are missing from the reports. According to estimates, these could exceed EUR 1 bn (based on the annual cost of aircraft rentals), which would already push Wizz Air into a net loan position.

Share price reaction

Shareholders welcomed the annual results and within minutes after opening Wizz Air’s share price rose to GBP 14.75 on the LSE, which marks a 1.7% rise over yesterday’s closing price. This is almost 28% over the IPO price.

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