TS811 wrote:greg85 wrote:TS811 wrote:
It will depend on their ability to manage (reduce) their cost base. Compared to pre-Covid, revenue increased +41% while growing +36% so demand is there. RASK is flat due to an increasing stage length but it's still strong yield performance given the growth. Yes easyJet and Ryanair saw stronger unit revenue growth but easyJet are smaller compared to pre-Covid and Ryanair "only" grew 16%.
The issue is on the cost side. Without properly dissecting each cost item, I believe there will be relief from two main areas:
1) Utilization is still 1 hour below 2019 levels. Improving utilization will lower their fixed unit costs. Their target for next year is to do better than 2019.
2) Fuel hedges from the competition will start to expire and level the playing field. Wizz Air's unit fuel costs should decrease while easyJet/Ryanair's should increase.
My analysis is that they lost money because they grew faster than others, and failed to hedge their fuel costs when everyone else did. But if the revenue environment remains strong and they reduce their costs thanks to higher utilization and lower fuel bills, I wouldn't be surprised if they're profitable again next year.
A nice analysis. But I think it ignores a few points. It ignores Wizz’s shambolic operation. They have seemed unable to overcome this, and no doubt owe many more passengers compensation for delays and cancellations.
EasyJet are once again bigger than pre covid, and I don’t remember either them or Ryanair accepting huge losses just because they were growing.
The “playing field” will never be level. Ryanair are famous for dodging taxes and all the other tricks from the last decade or 2. I’m sure Wizz will continue to try a few tricks of their own.
It’s a poor performance from Wizz, no other way to put it.
I haven't gone into the details of the cancellation costs, but don't all European LCCs more-or-less suffer from operational breakdowns..? Whether it's due to crew shortages, ATC strikes, etc. It could be worse for Wizz Air, I haven't checked.
easyJet and particularly Ryanair did better not only because of lower growth but mainly due to better cost control. As we are discussing profit which is revenue minus costs, I'm addressing both the revenue side and the cost side.
The playing field I'm referring to is regarding fuel costs and hedging. Of course Ryanair will do whatever trick they can to make more money, and so will Wizz Air for that matter.. it's part of the ULCC business model!
I wouldn't say the overall performance is bad, just the fuel hedging strategy was completely botched. It would be interesting to run the numbers assuming a better hedge and see where that would have gotten them.
Their overall performance isn't necessarily that bad now, however Wizz also massively screwed up its response to labor shortages last summer. Whereas RYR dumped capacity it assumed it may not be able to operate beforehand, Wizz simply hoped for the best and ended up having to delay/cancel masses of flights at the last minute. RYR's strategy meant it just had to refund people under EU261, Wizz on the other hand also had to pay compensation to most pax on top, certainly not helping with losses.
The bigger issue that creates is that Wizz in the UK, and also in Italy from what I've heard, now has a reputation for being shoddy and unreliable. Whilst Ryanair also doesn't have a glowing reputation, it's certainly not known for being continually late or frequently cancelling flights (at least now). I've flown Ryanair countless times and to their credit the worst I've ever had with them is a flight cancelled a month in advance, and another that landed 20 minutes late. My family are largely BA loyalists however they will happily fly Ryanair if the fare is low enough, none of them will touch Wizz with a barge pole regardless of price as they've all heard horror stories, and I'd be quite confident in saying a decent chunk of the travelling public in the UK feel the same. That doesn't bode well for an organisation that's trying to massively expand in that very country and is shown by their frequent cutting and changing of UK bases/routes.
If the most common complaint is about extra fees and slightly uncomfortable seats, the majority of people will happily overlook that if the fare is low enough. That same majority will be unwilling to overlook a reputation of delays/cancellations, especially when the alternative is better known and still competitive on price, hence I cannot see how their dramatic expansion will succeed. I think that's a big factor in their poor financial results.
