Wizz Air share price tumbles as it expects Q1 loss

Wizz Air losses widen despite rebound in passenger numbers

Wizz Air carried over 27 million passengers during the year to the end of March 2022. That was more than double the 10.2 million carried the year before, but remained well below pre-pandemic levels, with around 40 million people flying with the airline during the 2020 financial year, before Covid-19 erupted.

With demand still recovering and its fleet still operating less efficiently than normal, Wizz Air reported a net loss of EUR642.5 million in the year to the end of March 2022, swelling from the EUR572.1 million loss booked the year before.

Wizz Air expects capacity to surpass pre-pandemic levels

The recovery in demand is set to gain traction in the new financial year. The airline said it is on track to handle record traffic this summer as people make up for lost time after years of being told not to travel. Wizz Air said capacity should be some 30% above pre-pandemic levels in the first quarter of the new financial year (April to June) and 40% higher in the second (July to September).

‘Summer demand indicators remain excellent at this point, supported by strong consumer dynamics: an urge to travel, improved household savings ratios in key markets, near-full employment and wage inflation. Our ultra-low cost model will thrive as consumers will choose the best value in the market,’ Wizz Air said.

Wizz Air recovery threatened by several headwinds 

Wizz Air struck a positive tone about some issues weighing on the airline industry. The company said it now believes it is in the ‘endemic phase of Covid-19’ and that it has ‘managed the trading impact from the war in Ukraine’ that disrupted its core operations in central and eastern Europe.

However, it warned that rising energy costs and rampant inflation remain a problem and that supply chain issues, including a shortage of staff, remains a major challenge for the industry. Wizz Air said it was ‘deploying extra resources to minimise disruption’ after being one of several European airlines that have been forced to cancel flights in recent weeks. On the staff front, Wizz Air said it recruited around 2,200 new staff during the recently-ended financial year and said it expects to have around 6,700 workers by the end of summer 2022. That would be up from around 4,000 before Covid-19 hit.

‘Our financial focus is on maximising revenue and optimising cost. We are confident we can return to pre-COVID productivity and ex-Fuel CASK levels during FY23 by returning to full utilization of our aircraft and delivering full flying programmes for our people,’ Wizz Air CEO Joszef Varadi said this morning.

Improved efficiency as demand recovers should lead to a significantly better financial performance in the new financial year. A rise in prices, with Wizz Air anticipating an ‘upper single-digit’ increase in average ticket prices between July and September, will also help cushion the blow from higher costs later this year. However, the environment right now is being dominated by staff shortages, rising costs and the competitive price environment and this means Wizz Air expects to report another operating loss in the first quarter.

‘We see strong consumer demand for summer, but expect an operating loss for the first quarter of FY23. The airline industry remains exposed to externalities such as air traffic control disruption and continuing operational issues within the airports sector, adding to a volatile macro environment. As a result, at this point, we are not providing further financial guidance for the year,’ Varadi added.

When will Wizz Air return to profit?

Markets currently expect Wizz Air will post an operating loss of EUR75.2 million in the first quarter, according to current consensus figures taken from Bloomberg, but believe it can swing back to a profit of EUR254.9 million in the second quarter as the peak travel season takes off.

However, earnings are expected to remain volatile this year and analysts believe it will ultimately remain in the red in the 2023 financial year with the consensus pointing toward an annual operating loss of EUR30.5 million. That means Wizz Air could struggle to fully escape the red until the 2024 financial year, when analysts think the airline will see operating profit surpass pre-pandemic levels and hit EUR542 million.

Where next for the WIZZ share price?

Wizz Air shares are trading lower this morning as markets shunned the stock following its warning it will remain in the red in the first quarter amid the challenging environment for airlines. There is little doubt that Wizz Air and other airlines represent strong recovery plays as demand for travel rebounds, but the uncertain short-term outlook plagued by several headwinds is what is at the forefront of the market’s mind at present.

The stock has dropped below the 2,713p level of support seen during March and April today. If this level fails to hold, then we could see shares fall back toward the next key level of 2,535p. Any move below here would be more significant as it brings the 11-month low hit in early March back into play and could see shares slip back below 2,420p. The bearish RSI, supported by a rebound in trading volumes over the past 20 days, suggests the stock could come under further pressure.

Shares need to recapture the 50-day moving average at 2,954p to install confidence it can break out of the latest downtrend. From there, it can target the May-high of 3,163p, the April-high of 3,307p and then the 100-day moving average at 3,368p. Any move above here could be more significant and see it swiftly recover back toward the longer-term moving average at over 4,000p.

The 21 brokers that cover Wizz Air have mixed views on the stock but overall they see over 32% potential upside from the current share price with an average target price of 3,659.66p.

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