ii view: Wizz Air shares dive as more seats empty in September

Passenger traffic update

ii round-up:

Eastern Europe focused airline Wizz Air Holdings (LSE:WIZZ) today detailed a gain in passenger numbers but a drop in the percentage of available seating filled as it flew more planes. 

Passenger numbers for September of 5.75 million was up from 5.53 million in September last year. However, Wizz had 6.27 million seats to fill last month, up from 5.99 million in September 2023, which reduced the load factor - how efficient an airline is at filling its planes - to 91.7% from 92.4% a year ago.  

Shares in the FTSE 250 company fell 7% in UK trading having come into this latest announcement down around 38% year-to-date. Today’s passenger update came against news of an escalation of the conflict in and around Israel. Air France-KLM (EURONEXT:AF) is also down by close to 40% year-to-date, British Airways owner International Consolidated Airlines Group SA (LSE:IAG) is up 25%, while the FTSE 250 index is up 6.5% in 2024.  

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The Hungary headquartered Wizz flies to over 190 airports in more than 50 countries. Increased capacity or jets in the air during September came despite Wizz still battling Pratt & Whitney engine related groundings. 

Second-quarter seat capacity to late September rose 1.2% year-over-year to 19.11 million, with passenger numbers up 1.1% from a year ago at 17.90 million.

During September, Wizz announced the launch of its first routes to be flown by its new Airbus A321XLR (Extra Long Range) aircraft. Daily services between London Gatwick and Jeddah, and Milan Malpensa to Abu Dhabi, are due to begin next summer.

The ongoing grounding of some Pratt & Whitney powered aircraft for inspections and adjustments left some older planes flying in place of newer more energy efficient ones, pushing emissions up 2.5% year-over-year.

First-half results are scheduled for 7 November. 

ii view:

Commencing operations in 2004, Wizz Air today employs around 8,000 people. Wizz flew a record 62 million passengers during its last financial year to late March, up from 51 million in the previous year. The airline earlier this year converted its entire fleet based at Luton airport to new generation Airbus A321neos a year earlier than planned. Management continues to target powering a tenth of its flights with sustainable aviation fuel by 2030. Group competitors include easyJet (LSE:EZJ), Ryanair, Jet2 and flights operated by travel company TUI AG (XETRA:TUI1). 

For investors, heightened geopolitical tensions including potential for wider conflict in both the Middle East and beyond Ukraine cannot be ignored. Difficulties for industry suppliers such as Pratt & Whitney and Boeing have created operational challenges for airlines. Group net debt was €4.8 billion in late June compared to a current stock market value of £1.3 billion (€1.6 billion), while the many factors outside of management’s control such as the weather, air traffic control strikes, and the price of oil all warrant consideration. 

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On the upside, a high focus on environmental credentials persists. A profit of €357 million was made over the last fiscal year, up from a prior year loss of €535 million. Actions to hedge against volatile fuel and currency remain active, while an expansion of its aircraft numbers and route network continue, with aircraft numbers up to 218 in late June from 182 a year earlier. 

Recent profits, ongoing expansion and a focus on environmental credential offer reasons for hope. However, with global geopolitical tensions high and group net debt elevated, this airline appears to be one for higher risk investors.     

Positives: 

• Focus on costs
• Positive environmental credentials

Negatives:

• Operations hit by challenges at engine maker Pratt & Witney
• Many factors outside of management’s control 

The average rating of stock market analysts:

Strong hold