[WIZZ – Wizz Air] Flying Through the Storm

A while back, I tweeted:

[Whoops!  My share count was off when I tweeted this….should have been more like ~11x mfcfe.]

In case it wasn’t clear from my tweet, the process by which Wizz has gotten there largely mirrors the Ryanair playbook, which I described in an earlier post:

“Michael O’Leary, profanity-oozing ass-kicker and Ryanair CEO since 1994, left Kelleher’s charm and decency on the Love Field tarmac but imported his operating model to Europe, stoking a relentless self-reinforcing moat entrenchment process that continues to this day.  Early in its corporate life, by targeting secondary airports desperate for traffic – Hahn, not Frankfurt; Brescia, not Verona; Lubeck, not Hamburg; Skavsta, not Stockholm – Ryanair obtained substantial landing fee discounts.  Stansted, for instance, agreed to charge Ryanair £1 per passenger vs. the official rate of £6 while Essex airport offered heavily discounted fees on new routes, laddering up to higher tariffs over 4-5 years as those routes matured and densified.  Ryanair recycled the cost savings into lower passenger fares, attracting fresh waves of traffic that were used to negotiate favorable landing fees at other secondary airports and receive discounts on aircraft orders from Boeing”.  

But there are some notable differences too: Wizz standardizes on Airbus instead of Boeing planes and leases rather than owns most of its fleet (the company finances aircraft deliveries through sale/leaseback arrangements).  [relative to running a heterogeneous fleet, standardizing on a single aircraft type yields operational cost advantages: Wizz does not bear the incremental cost of training flight crews for different types of aircraft; can pair any flight crew with any plane; reduces the costs of maintenance and repairs, and simplifies the logistics of ordering spare parts and maintaining inventory].  

And then there are the ancillary fees (baggage fees, priority boarding, allocated seating, and the like).

Here is Wizz Air’s revenue and ex. fuel costs per passenger alongside Ryanair’s:

[LTM through June 2018]

Notice that Wizz derives a much higher portion of its revenue from ancillary fees than Ryanair.  After compounding at nearly twice the rate of passenger ticketing revenue over the last 6 years, ancillary fees comprised over 40% of total revenue heading into fiscal 2019.  So investors were shook when this line item, after growing consistently growing by ~25% year after year, suddenly decelerated to just 12% y/y growth in the quarter ending March 2018, and then by just 9% the following quarter.