Wizz's counter-cyclical capacity build

When Covid-19 is finally consigned to the history books, some industries will look rather different to how they did pre-pandemic. The view exists that the negative impact on global travel numbers caused by the virus will endure for longer than we might hope. But it is clear from Wizz Air’s (WIZZ) half-year figures that some companies envisage that market disruption will eventually give way to opportunity.

That could explain why the budget carrier has been looking to drive capacity whenever and wherever possible, albeit at the expense of load factors, ergo the percentage of available seating that has been filled with passengers. Capacity returned to around 70 per cent of the 2019 rate in the three months to the end of October, though invariably this will need to contract again due to fresh lockdowns across the continent. Nevertheless, Wizz took delivery of 11 Airbus A320neofamily jets in the half-year to September, increasing the size of its fleet by around 9 per cent. With one eye on the future, the airline is looking to secure counter-cyclical short-haul benefits over the long-haul.

Investors may be concerned that this is not the time to be gearing up for further capacity expansion in anticipation of the disruption easing, but the flier insists that it is sufficiently capitalised to see-out even the realistic worst-case scenario, the grounding of the entire fleet for the duration of the second half. The collapse in revenues and a swing to an interim loss would have surprised no one, but investors will need to determine whether the group’s focus on post-pandemic opportunities is realistic given the immediate prospects for the industry. The possibility still exists that negative market conditions will extend beyond FY2021. Risks still outweigh potential rewards. Sell.