Wizz Air has been associated with the Ukraine crisis as a helpful partner in getting people out of danger. However it appears that the financial health of the company is not good. In the first quarter of the company’s financial year from March until June, the company suffered heavy losses with a quarterly loss of 452.5 million Euros when compared to a loss for the same period in 2021 of 114.4 million. As one can see there was a 295% increase in the loss when compared to the same period in the previous year. So why is Wizz Air facing this problem?
It appears that a closer inspection of the financial performance indicates that revenues, that is the total money coming into the company before expenses are deducted, are actually now higher than in 2021. Revenue last year for the same period was 199 million Euros when compared to 808.8 million Euros now. This translates as an increase of 306.4%. As the pandemic rules have been reduced it appears that passenger numbers have also increased from 2,954,274 to 12,182,156 which is a percentage increase of 312.4%. So it appears that commercially the airline has picked up in terms of both passenger volume and passenger receipts since the pandemic. This means that attracting more customers clearly is not the problem.
Increases in Expenses
However, if you look in more detail one can see that expenses have increased considerably. József Váradi the Chief Executive has commented that fuel costs have increased a lot due to recent higher prices and were double pre-pandemic levels. Váradi has also commented on the fact that the war in Ukraine has had supply chain disruption affecting airport security, and ground operations have impacted asset utilisation. What this essentially means is that the running costs, that is the costs of operating flights, became higher because of additional costs attributable to the Ukraine conflict.
The good news is that the airline’s cash position has improved since March with an increase of 14.8%. This means that the company is likely to be more stable financially than it was 3 months previously with more money available to cover costs. However, this is only relative as even at that time the company was making heavy losses. However, Váradi has commented that the improved cash liquidity (cash availability) has taken place whilst the company has grown its business.
The company has in fact followed a growth path this year in addition to restoring services to areas in their core market. In terms of growth, there are now also new bases in Cardiff in the UK and Venice in Italy, and a number of additions to bases in other parts of the UK and Europe. Váradi has discussed the fact that the company is expanding its operations. 30% of Wizz’s operations are now in new markets to which the company expanded operations during the pandemic. Countries expanded into include Italy, Albania, and the United Arab Emirates. Váradi has also said that the company will be making tactical service reductions in order to improve agility and reduce supply chain problems.
To conclude therefore we can see Wizz has been dealing with higher losses even when compared to pandemic times. However, these losses can largely be attributed to increased expenses resulting from higher operating costs due to problems of higher fuel costs and supply chain issues due to the Ukraine invasion. However, as the company works to expand its reach and improve its operations tactically to reduce supply chain problems, the Chief Executive, József Váradi talks about receipts from fares increasing and asset utilisation (and therefore running costs) improving.
In this way, he talks confidently that Wizz’s position is likely to improve this summer. We have to wait to see how this progresses.