Can Wizz Air shares take to the skies as summer bookings soar?
Updated
The Wizz Air (WIZZ) share price tumbled 5% yesterday as it announced summer flight cuts blaming labour shortages and strikes in Europe for the move.
It’s not the only airline that has been forced to cut passenger numbers. Others including easyJet (EZJ) and British Airways, which is owned by International Consolidated Airlines Group (IAG) have had to cut thousands of flights amid a ‘summer of discontent’ where inflation is pricing more passengers out of booking a holiday this season.
In a trading update issued yesterday (11 July) Wizz Air said it was continuing to ramp up its operations against a ‘challenging macro and operational backdrop’. But the company has remained upbeat and added that it is expecting a ‘material operational profit in the second quarter of the financial year (July – September) as revenue and pricing momentum is expected to continue to improve’.
But given the rate of inflation and cost of living squeeze, is Wizz Air right to be so optimistic?
What is your sentiment on WIZZ?
Wizz Air (WIZZ) share price chart
Wizz’s trading update
The London listed travel company reported an operating loss of €285m ($XX) for the quarter. The company blamed this on the cost of disruptions, lower utilisation and the pricing environment in April and May.
It, however, made assurances that its liquidity remained strong with a cash balance at the end of the quarter of €1,570m and that it continued to maintain its investment grade rated balance sheet position.
It also highlighted that its load factor, which measures how many seats the airline can fill, continued to improve to above 90% as of July.
But AJ Bell investment analyst Danni Hewson said in a note that the trading update didn’t ‘paint a picture of a company flying high’.
Hewson said: “While aircraft capacity is up compared with the period just before the pandemic, the percentage of bums on available seats has fallen.
“Wizz Air’s ticket fares were down in the quarter and there has been a big jump in fuel costs. All in all, the airline was loss-making in its first quarter, meaning the considerable effort put into making it a winner in the industry hasn’t actually generated any extra money in its pocket.”
EasyJet has also had to cut flight numbers
Is a price war the answer?
Hewson is not convinced that the airline can turn its fortunes around this summer and feels it will have to resort to drastic measures to attract more customers.
Hewson said: “Ever the optimist, Wizz Air sees a much better second quarter, predicting that ticket prices will be higher, more people will be travelling, and non-fuel costs will ease back. However, like many other airlines, Wizz Air is reducing its capacity this summer to ease pressures on airports.
“There isn’t much else that Wizz Air can do beyond entering a price war to help fill its planes to maximum capacity. That seems unlikely given the trend across the sector is for air fares to go up.”
When asked for his opinion on Wizz Air’s short term fortunes, Walid Koudmani, chief market analyst at XTB, told Capital.com: “Despite a marked recovery compared to the pandemic, which saw demand heavily impacted by lockdowns, staff shortages and general economic downturn have become the key issues to contend with.
“Many consumers are going to be priced out of travelling as a result of rampant inflation and the continuous travel disruptions could cause a significant loss of business in the short midterm.
“However, if we were to see an improvement in economic conditions then we could certainly see airlines benefit from that, which would translate into positive results for companies like Wizz Air.”