What are the chances of Wizz Air (WIZZ)’s share price quadrupling over the next five years? Currently, it’s somewhat under £30, but if it reaches £119.34 in March 2028, or touches it in two consecutive quarters before that, then its chief executive would become £100mn better off. Even at £77.24, he’d be in for a more modest (but frankly outrageous) £65mn. Not bad for someone who has received an average £1.9mn a year for the past 10 years.
“We have a unique and world-class leader in our chief executive, József Váradi, who has led the business through a period of strong growth since IPO and, despite the recent external environment, has continued to create the strongest and one of the most profitable airlines in the world,” the directors say in the 2023 annual report. Apparently, it was because they heard that Váradi was being tempted by job offers that they came up with the £100mn carrot. This just happened to be £1mn more than the possible £99mn-worth of share options that had been dangled in front of Michael O’Leary, chief executive of Ryanair (IE:RYA). Both boards were prepared to pay whatever it took to keep them. Proxy advisers warned about poor governance, but shareholders backed the proposals anyway.
Váradi claims that “Wizz Air is the fastest growing ultra-low-cost carrier and one of the most sustainable European airlines”. He had only been in the business for a couple of years when he co-founded the company in Hungary in 2003. The group has since expanded beyond central Europe into parts of Asia. Wizz listed in London in 2015 and, with Brexit looming, it set up a UK subsidiary that took over landing slots from the near-defunct Monarch Airlines. Today, it operates a fleet of 179 aircraft, connecting 228 destinations across 56 countries, which Váradi intends to increase to 500 aircraft before the end of the decade.
The annual report says that the group provides “a frictionless digital customer experience and efficient, data-driven operations… A team of dedicated aviation professionals delivers superior service and very low fares”. Wizz Air, it goes on, is “the preferred choice of over 51mn passengers”. The target is to grow this number to 170mn, an annual growth rate of 15-20 per cent in seat capacity – made possible because “key performance indicators deliver best-in-class metrics around minimal flight cancellations”.
At this point, we need to get back to reality. Aggressive growth has racked up massive debts and management issues, made worse by Covid lockdowns, in the depth of which Váradi formed an Abu Dhabi joint venture. Despite the atrocities reported in Ukraine, Wizz then announced that flights to Moscow would resume from October 2022. Being ultra-low-cost involves high charges for extras such as baggage, and resisting making refunds – Wizz had more delays than any other airline in both 2021 and 2022, and its poor service generated twice the number of complaints. A weak Civil Aviation Authority left aggrieved customers having to resort to the courts, and even then Wizz delayed coughing up. In May, Which? ranked it the worst out of 23 airlines.
As is often the case, service issues are exposed when technology fails. Online check-ins are free, yet passengers have been charged over £40 to check in at airports unless they had a screenshot to prove that the website was down. The secret to being ultra-low cost, Váradi said in 2018, is to “outsource everything like ground operations, aircraft maintenance, accounting and many other administrative areas. We think that other people can do a better job than us in those areas”. It sounds as though he and his team have fallen into the trap of assuming that outsourcing need not be managed.
Which? reports that over 2 per cent of Wizz flights (scaling this up suggests about 1mn passengers) were more than three hours late; 98 per cent were not, but that’s hardly any consolation for those affected. In fairness, many customers say their flights went as planned. A bit crowded maybe, and uncomfortable seats, but you get what you pay for. Wizz claims that its service has improved. Employees have been told that the future is PINK (Punctual, Innovative, New and Knowledgeable) but some still feel exploited. One was said to describe the culture as “greed at the top and a squeeze at the bottom in pursuit of a pumped-up share price”.
Perhaps being ultra-low-cost means that reputation is not such an issue. You could argue that things can only get better. Maybe they will.
