Lackluster results for fiscal Q2, cautious outlook

 Wizz Air published its fiscal Q2/21 report today, BMO.

 In a nutshell, Wizz Air reached a net loss of EUR 87mn in the previous quarter ended on Sept. 30, vs. our estimate of EUR -12mn. The difference mainly came from worse-than-expected revenues. Cost control remained in focus, liquidity position is sufficient to withstand a tough winter and so. As a result, long-term prospects seem to be intact, but short-term outlook is fragile given the limited visibility ahead of the winter season.

 Though, the Management has left the fleet expansion guidance broadly unchanged (-1 a/c by March 2022 vs. prev. projection), Wizz Air delayed the deliveries of 8 brand new A320neo family aircraft. As a result, Wizz Air is expected to operate with a fleet of 159 aircraft by March 2022, but cost efficiency will likely improve in a smaller extent.

 Despite the fact that liquidity position at Wizz Air remained strong, revenues declined steeper-than-expected in the previous quarter. It’s clear that capacity growth comes at a price, but it is unusual that ticket revenues per passenger was down by nearly 40% YoY on YoY comparison. Though, long-term prospects are still intact, profitability may return to pre-covid levels later-than-expected. As the carrier mainly operates in the CEE, where it has a market share of over 30% amongst low cost carriers, Wizz Air will not meaningfully benefit from supply withdraws and likely have to stimulate the market with substantially lower tickets at least in the next 1-2 years. As a result, we downgrade Wizz to Accumulate.

 In the short term, we don’t expect Wizz Air to operate more than 30% last year’s capacity until the Christmas holiday season and this might be the case if travel restrictions remain in place across Europe. Unless a vaccine is available, Wizz Air may need to raise cash next Spring when the carrier is due to pay back GBP 300 million, which has been taken from BOE’s Covid Corporate Financing Facility (CCFF).