Wizz Air nosedives to deeper loss

It was a tale of two quarters for Wizz Air (WIZZ). The budget airline, which focuses on Central and Eastern Europe and has expanded into the Middle East, said that operational performance “normalised” as the year went on, with flight cancellations and disruption returning to historical levels. Revenues in its second quarter (to 30 September) were up by 41 per cent against the pre-pandemic rate, with strong cash profits of €218mn (£188mn) recorded for the half year. A pretty solid showing.

But a challenging first quarter, in which Wizz faced a doubling of fuel prices from pre-pandemic levels, together with the continuing impact of pandemic restrictions and supply chain disruption, cast a pall over the whole. And Wizz wasn’t helped by the dollar’s strength against the euro, given it reports in the latter currency. This dragged the company down to a significantly worse statutory loss, with an eye-watering 905 per cent increase taking the net foreign exchange loss to €269mn.

It is good news, then, that Wizz has changed tack on its former no-hedging policy around the dollar and jet fuel costs. The result of this policy is seen in the company’s negative year-to-date share price performance against competitors such as easyJet (EZJ) and Ryanair (RYA) due to its greater exposure to manic fuel prices. The company said that “given the sustained and ongoing volatility in commodity prices” it will reinstate jet fuel hedging (in line with peers) from 2024 and will hedge its dollar exposure.

Peel Hunt analysts said that “with rapid fleet growth and a pivot to the Middle East, [Wizz] will continue to expand quickly, using its low cost base to increase market share”. The shares trade at only four times the broker’s financial year 2025 earnings forecast, which is notably undemanding. Hold.

Last IC View: Hold, 2,500p, 8 Jun 2022