Assessing September quarter results from Wizz

Headline loss for the first half

Wizz has a March year end, so the September figures announced today were for the first half of their financial year. The total loss before tax for the six months was €243m, which included €98m of exceptional losses for ineffective fuel hedges.

Operating loss before exceptional items was €147m, which split €55m in the first quarter and €92m for the second. So the trend is going in the wrong direction. Compared to the first quarter, revenue was €290m higher as the company operated a lot more capacity. Cash costs (i.e. excluding depreciation) rose by almost exactly the same amount.

That's a bit hard to reconcile with the company's statements that they are being disciplined on capacity and focusing on cash positive flying.

Wizz has modelled itself on its bigger competitor, Ryanair. Both companies claim to be the lowest cost airline in Europe and in this post, I looked into those claims, declaring it to be a dead heat going into the pandemic.

How did Wizz's September quarter results compare to those of Ryanair?

Revenue performance compared to Ryanair

The first big difference was that Wizz flew a lot more capacity as a percentage of 2019, operating seat capacity at 72% of last year, compared to Ryanair's 50%.

However, load factors were lower at 65.6%, more than 6 percentage points below Ryanair's 72%. Total revenue per passenger fell more than twice as fast at Wizz, down 21% versus 2019 compared to Ryanair's drop of only 10%.

That meant that revenue fell almost as much at Wizz (61%) as at Ryanair (66%), despite the much higher capacity operated.

Wizz have now cut back their capacity and are much more in line with Ryanair, so maybe they would privately acknowledge that they overdid it.

Cost performance

In unit cost terms, there wasn't much to choose between the carriers. Cost per seat was virtually flat compared to last year in both cases.

That is impressive performance. I'll give the win to Ryanair though, because they managed to hold unit costs flat despite a much bigger capacity reduction.

Profitability

With revenue per seat falling by 46% and flat unit costs, Wizz didn't manage to pull off Ryanair's trick of recording a small pre-exceptional profit in the quarter. As we have seen, operating loss before exceptional items was €92m.

That was despite recording some one-off P&L gains from sale and leasebacks and compensation from Boeing for aircraft delays, both of which they netted against operating costs. These amounted to a total of €37m in the half year, although I don't know the quarterly split. But maybe the underlying operating cost performance wasn't really quite as good as it looked.

Overall, they reported a negative operating margin of 24% before exceptional items in the quarter. That was better than easyJet's circa -50% margin and much better than the big network airlines, with the exception of KLM who managed -20%, helped by strong cargo performance.

Cash and debt

Since April, Wizz's net debt has risen by €346m. That is rather more than their €243m of after tax losses during the period, mainly driven by the 11 extra aircraft they have taken since the end of March. So cash burn wasn't that different from Ryanair if you adjust for size.

But the big difference is that the net debt level at the two carriers is very similar in absolute terms, despite Ryanair being almost four times the size.

Conclusions

These results were pretty good in the circumstances and compared to most other airlines in Europe. The market seemed to receive them well and the shares were up 3.8% on the day.

However, I think they confirmed to me that the "Wizz exceptionalism" has been a bit overdone. Their ability to profitably restore their capacity much faster than other airlines has not been convincingly demonstrated to my mind.

I reckon that Ryanair did more things right in the quarter and between the two carriers, I'd place my bet on the Irish carrier.