Interactive Investor

ii view: Wizz Air demand climbs but conflicts cloud prospects

Shares in this low-cost airline have underperformed rival easyJet in 2023 by some distance. Buy, sell, or hold?

4th December 2023 11:49

Keith Bowman from interactive investor

Passenger numbers update

ii round-up:

European budget airline Wizz Air Holdings (LSE:WIZZ) today announced it had flown 4.76 million passengers during November. That’s up from 3.68 million in November 2022 and comes as pandemic restrictions have been scrapped and airlines have ramped up capacity.

Shares in the FTSE 250 airline drifted marginally lower in UK trading having come into this latest news up around 3% year-to-date. That’s similar to American Airlines Group Inc (NASDAQ:AAL) although below a 45% increase for rival easyJet (LSE:EZJ) shares in 2023. The FTSE 250 index itself is down by close to 2%. 

Wizz Air flies to over 190 airports in more than 50 countries, including many destinations across Central Europe and the Middle East. It previously halted flights to Russia, Ukraine and Israel following the outbreak of conflicts there. Israel had represented around 5-6% of its total capacity.   

Wizz Air’s load factor - the proportion of available seats filled with passengers -was 88.4% for the month, up from 88.1% in November last year. 

The airline, which competes against rivals including Ryanair, is planning to recommence flights into Chisinau, Moldova from 14 December having suspended them following Russia’s invasion of Ukraine. Flights to Israel have been ceased until January, with management monitoring the situation closely. 

Third-quarter results are scheduled for 25 January. 

ii view:

Wizz Air made its maiden flight in May 2004 flying from Katowice in Poland to London Luton. Today it operates a fleet of 191 Airbus A320 and A321 aircraft, carrying 51 million passengers over its last financial year to the end of March across more than 1,100 different routes. 

For investors, geopolitical factors including an escalation of Israel’s conflict to the wider Middle East cannot be ignored. Factors such as difficult operating conditions and security concerns saw it previously lowering the upper end of its 2024 profit forecast. Elevated interest rates continue to pressure spending budgets for both consumers and companies alike, while the many factors outside of management’s control such as the weather, air traffic control strikes, and the price of oil also warrant consideration.  

On the upside, actions to hedge against volatile fuel and currency moves have previously been taken, and the youth and fuel efficiency of its aircraft fleet provide Wizz with high environmental credentials. Alaska Air Group Inc (NYSE:ALK)'s push to buy Hawaiian Airlines in the US could also suggest possible industry consolidation, while an expansion of Wizz's fleet of aircraft and route network are ongoing. 

For now, and while a good dose of caution still looks sensible, a consensus analyst estimate of fair value of over £27 per share may convince existing shareholders to sit tight.  

Positives: 

  • Focus on costs
  • Positive environmental credentials

Negatives:

  • Operations hit by conflicts
  • Many factors outside of management’s control 

The average rating of stock market analysts:

Strong hold

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