INTERVIEW: Airline industry’s Wizz kid continues to fly ever higher

INTERVIEW: Airline industry’s Wizz kid continues to fly ever higher
Wizz Air Airbus A320 plane. Photo from website/CC.
By Kester Eddy in Budapest January 26, 2016

It's 2:40 on a Friday afternoon, and Jozsef Varadi is running late. But urgency does not override good manners: at the door, he ushers in an assistant bringing coffee. Dressed in open-neck shirt and jeans, even at 50 he has the vibe of a start-up entrepreneur – except his one-time start-up now employs some 2,200 people and had revenues of €1.23bn, up 21%, in the last financial year.

Varadi is the founding chief executive of Wizz Air, the budget carrier which immodestly – but accurately – claims the title of “largest low-cost airline in Central and Eastern Europe”. A former Proctor & Gamble commercial manager, he can be forgiven a little tardiness: not four working weeks into the new year and Wizz has already announced 11 new routes for 2016. These range from the utilitarian-sounding Sofia-Birmingham, via the adventurous Budapest-Reykjavik, to the positively exotic Katowice-Sardinia.

“If you look at the numbers, we are inducting around 10 aircraft a year, incremental to the fleet. We are hiring around 600-700 employees every year, so essentially every day we're hiring two people, including weekends,” he tells bne IntelliNews.

It is such frenetic, but well-planned activity that has underpinned Wizz Air's expansion from a handful of aircraft for its first flights in 2004 to a carrier that today boasts 65 airplanes flying over 400 routes from 23 bases in CEE. By the end of October last year, it had flown over 100mn passengers. 

Such numbers validate Varadi's ethos when co-founding the carrier, which was that the former communist countries were ripe for commercial aviation growth if only the fares could match their peoples’ limited pockets. As he said in an earlier interview, national airlines at the beginning of the millennium were charging “prohibitive prices”, resulting in air travel being limited to a privileged few. “I thought that was kind of wrong,” he says. So to attract punters, flying needed to be “commoditised” – available to the masses by offering ultra low-cost fares.

The secret to success is, of course, to keep an equally ultra-tight rein on costs, and introduce a carefully calibrated set of ancillary revenues – such as baggage in hold – to keep ticket prices at bargain-basement levels.

Plane sailing

Yet 12 years into the game, Varadi and his planners believe there are plenty more to entice through the boarding gates. This is why last year Wizz Air ordered 110 new Airbus 321neo aircraft (with an option on an additional 90 in a best-case scenario) for delivery between 2019 and 2024. This contract, worth $13.7bn at list prices, is on top of the current order for 35 aircraft due for delivery by 2018.

While some of the new deliveries will replace older planes in the current fleet, the majority will support further expansion. “We are going to have over 160 aircraft [by] 2024. So, over the next eight to nine years, we are going to two and a half, almost three times as many aircraft,” he says.

Moreover, the new A321s will have 230 or 239 seats, a significant increase in capacity to the 180-seat A320s (which form all but two of the current fleet), resulting in a 10% reduction in costs per seat.

Such ambitious plans inevitably raise questions, such as: can they fill the seats?

Eli Abeles, a London-based aviation consultant, is more nuanced: “How will these aircraft be deployed? What balance will there be between new routes versus higher frequencies on current routes, given that current frequencies are low relative to competitors?”

So far, with just two A321s in service since late last year, the investment is paying off, Varadi claims. As for future deployment, “around 80% of [new] capacity will be used for increasing frequencies on existing routes or joining the dots, joining existing airports,” he says, leaving 20% – ie. 20 planes – for “pioneering new countries, new airports”.

True, the frequency on routes is low, but this is par for the course, given the regional specifics. “Indeed, we have a fairly thin network in a way – in terms of frequencies, we are around five [flights] on average per route [per week]. This is significantly less than any other airline in western Europe, but it's just the nature of the market: it is not as robust in terms of city pairs [compared to] Western Europe,” he says.

More to the point, in terms of long-term viability, Wizz Air has proved that it can develop routes, Varadi insists. “We have demonstrated [this] throughout our history: we started Budapest – London as a daily flight: now, we fly five times a day.”

Nonetheless, automatic progression is not a given: in a region that has seen some political and economic downdraughts in recent years, Wizz Air has had to make some rapid tactical withdrawals, notably in Ukraine, where its fleet of four aircraft was slashed to just one as a result of that country's recent troubles.

Varadi, however, is unperturbed. “We are so diversified by now that if we are hit hard in one place, then the likely impact on the corporation is very limited, and we can move very quickly to make adjustments.”

Indeed, the Ukraine experience proved to be a backhanded compliment to the carrier's human resources department and espirit de corps: not one employee was laid off – all flight crew and office staff, around 100 in total, were relocated within the company.

IPO takeoff

Despite – or perhaps because of – its ambitious plans, the market clearly believes in Wizz Air. Approaching the first anniversary of its London IPO, Wizz Air shares closed on January 22 up a healthy 62% on the offer price of £11.50 – and this against an otherwise stagnant market, with the FTSE250 index little changed over the year.

With first-half (to end-September) fiscal 2015 figures showing load factor at 90.7% (up 1.6 percentage points) and net profit at €182mn (up 15.2%), current results certainly support the market optimism; JP Morgan analysts put a target price on Wizz shares in their last report of £22.50 for March 2017, for example.

“Clearly the financial market likes our model… The challenge for ourselves is delivering growth… the potential is still there,” says Varadi. “Oiling this machine, and delivering day-in-and-day-out, at high standards, is the challenge, but I think we are up to that.”