Wizz Air hopes to return to profit after fuel hedging fiasco

Low-cost European carrier Wizz Air is expected to return to profit this year as the post-pandemic recovery in travel gathers pace and the group puts a series of setbacks behind it.

The airline’s hopes of turning a profit by March 2024 were in stark contrast to the previous fiscal year, when it faced a number of problems, including a decision to abandon fuel savings when the war in Ukraine led to a sharp rise in prices.

Fuel price risk was a significant contributor to the net loss of €535mn for the year to 31 March. With extensive currency and fuel hedges, the Budapest-based group said on Thursday it expected to report a net profit of between €350mn and €450mn for the current fiscal year.

Wizz Air has expanded aggressively since its founding nearly 20 years ago, making it a rival to Ryanair in Europe’s low-cost market.

Citing a lack of hedging, chief executive József Varady said its fuel costs in the first half of its last financial year were “completely below the market” and that the market was “not doing us a favour”.

He attributed the expected change from a loss of €535mn to a profit of €350mn to €450mn, to three factors.

Varadi said that of the roughly €1bn reform he expected cost efficiencies to generate €400mn, better utilization of the airline’s fleet and crew €200mn and fuel and currency hedges expected to generate around €400mn .

“I have great confidence in the airline’s performance financially as a result of all the operational changes and investments we have made,” Varadi said.

Like other low-cost airlines, Wizz is investing in the latest generation of single-aisle, fuel-efficient aircraft. During the current financial year, it is expected to receive 42 Airbus A321neo aircraft with new, fuel-efficient engines. It intends to hand back 16 smaller A320s with older engines.

The company is targeting growth in Western Europe, along with expansion in Gulf countries such as the UAE and other parts of Asia.

Varadi said that, in light of delivery problems at Airbus, it expected to receive about four fewer aircraft during the fiscal year than originally targeted. However, he said, the airline had “levers to play” to manage the issue, including extending the lease of planes to its existing fleet.

Wizz Air shares have gained nearly 50 percent this year, cutting some of the decline that began in early 2021, as investors hope for further improvement in the carrier’s performance.

Following Russia’s full-scale invasion of Ukraine in February 2022, Wizz Air was forced to restructure 10 percent of its services that were scheduled to serve airports in Ukraine or Russia.

For the 12 months to March 2023, Wizz Air’s revenue is set to more than double to €3.9bn as passenger demand recovers from the pandemic. On Thursday, the airline said it expects to increase its available seat capacity by around 30 per cent in the current financial year.

“I think we’re clearly seeing very strong demand for our services and products,” Vardi said.