WOOD Flash – Wizz Air: thoughts on capital increase post 1Q FY23 results, CASK and RASK comparison vs. RYA

Wizz Air advanced some 10% on the day of its results, and the stock is up some 18% so far this week. We were surprised by the strength of the move, as the company just largely reiterated its previous comments, and the adjustments in the summer outlook (slightly lower capacity production offset by slightly higher fare guidance) seem broadly neutral from a financial perspective. The numbers were, expectedly, not pretty, with high oil prices, compensation fees and non-cash FX charges translating into a loss, which likely pushed the equity into negative territory. We believe that the noise surrounding the stock may have reminded investors that, despite the near-term headwinds, Wizz Air’s underlying cost structure is competitive, and the recovery of traffic is robust. From next year onwards, once the hedges of its peers have been rolled over and Wizz is, again, on a level playing field on fuel, Wizz’s CASK should approach the levels of Ryanair, and the gap relative to the rest of the industry should widen, in our view. If this is the case, we expect the company to return to profitability, allowing gradual balance sheet restoration. While Wizz Air might lose its investment grade rating in the coming months, whether the company will have to raise equity will depend on the degree of cash burn during the winter. If a recession is coupled with a reintroduction of wide-ranging COVID-19 restrictions on flying, and aviation comes to a halt again this winter, a capital increase would seem likely. In a less severe scenario, however, we maintain our view that Wizz Air is likely to be able to make it through the winter without having to raise equity. While the visibility on the winter remains limited, we summarise our initial thoughts on possible drivers of the cash position during the winter months in this flash note. We also include a detailed comparison of Wizz’s unit costs and revenues vs. Ryanair’s, while also comparing both with the pre-pandemic levels.