On Tuesday 18 April Jozsef Varadi, Founder and CEO of Wizz Air addressed members and guessed at the Avaition Club’s networking lunch at the RAC, London.
Victoria Moores attended the lunch and reported on behalf of Aviation Week/Air Transport World. Victoria Moores joined Air Transport World as London-based European Editor/Bureau Chief on 18 June 2012. Victoria has nearly 20 years’ aviation industry experience, spanning airline ground operations, analytical, journalism and communications roles.
LONDON—Wizz Air CEO József Váradi sees ample opportunities for further expansion after claiming four key strategic wins during the pandemic but acquiring TAP Portugal is definitely not one of them.
“The industry is expected to perform roughly around 95% of pre-pandemic capacity going into summer, but Wizz Air is at 170% of pre-pandemic capacity,” Váradi said in an April 18 keynote address to the Aviation Club of the UK in London. “We have more opportunities than we can execute. That’s been the case for some time.”
In 2023, the Wizz Air franchise is expecting to add 15 million passengers through organic growth and market stimulation. “This is the size of TAP Portugal. Why would we be interested in acquiring TAP Portugal if I can grow that magnitude of business organically, with no complexities and no real issues with integration and politics,” Váradi said. “Having said that, we would be very interested in seeing assets becoming available, like Gatwick slots and other similar initiatives. But we are not interested in buying bad airlines.”
Váradi flagged four “strategic gains” over the past two to three years, which have expanded the group’s footprint in the UK, Italy, Albania, Romania, and Abu Dhabi. “We suffered a lot, but at the same time COVID was probably one of our best strategic opportunities in the history of the company,” he said.
Wizz Air bought Norwegian’s London Gatwick slot portfolio, basing five aircraft at the airport. “That was a big deal,” he said. “Actually, we spent quite a lot of money on that.” When asked whether Wizz might expand into UK regional bases, Váradi replied that he is “extremely keen and eager” to develop Wizz’s London presence. “In terms of priorities, I think we should still be pushing for London, as opposed to go into the countryside.”
Váradi’s second strategic win was “invading Italy,” creating six new bases and gaining 10% market share. This expansion was fueled by favorable long-term airport deals, agreed to during the pandemic. “Within a year or two, we will be larger than ITA, the national carrier,” he said.
The third gain was on Wizz’s Central and Eastern Europe home turf, where the group’s market share has risen from 18% in 2019 to 27% today. “We really stepped up in two countries in particular, in Albania and Romania,” Váradi said. “So, quite a significant step change, in terms of market power and presence in the market.”
Finally, Wizz Air set up a new airline in Abu Dhabi. Váradi said some commentators have described Wizz Air Abu Dhabi as a crazy move, but he sees the Middle East as “the new Europe.”
“What happened in Europe after the Second World War; that’s what’s happening in the Middle East as we speak. I think the whole of the Middle East is transforming itself, economically and societally. There is a lot going on and we want to be part of it,” he said. “We continue to take growth opportunities in the region, not only in the Emirates, but also in other countries, even in Central Asia, as a result. “
Wizz’s mission is to be the lowest-cost producer in a commodity market. “Elastic demand is universal. We are seeing the same needs and aspirations among consumers in the Middle East. No one wants to be ripped off,” Váradi said. “Everyone wants to fly safe.”
Váradi is a keen supporter of tight regulatory oversight, especially when it comes to safety, and he said the Middle East authorities have been extremely stringent. “The regulatory scrutiny we are under in Abu Dhabi, I can tell you, is probably greater than here in the UK, or what we are having under EASA, so I’m actually very satisfied,” he said. “We are watched carefully, and we are benefiting from that level of scrutiny.”
Liquidity Over Dividends
Wizz’s first Airbus A321XLRs will likely be deployed on services between the UK to the United Arab Emirates (UAE), further growing the group’s Middle East presence and network.
“First, that aircraft needs to be delivered. I heard, recently, that we may get the first one towards the end of next year,” Váradi said. “We want to use the XLR for joining the dots, penetrating existing markets through longer-range flying. Our market focus is going to be, certainly for the early stages, limited to the existing footprint. Think of Dubai to London, Abu Dhabi to London, Saudi to London, those sorts of ideas.”
All this expansion costs money. In 2019, investors criticized Váradi for carrying too much cash. They urged him to pay a dividend, but Váradi refused, arguing that the company’s significant liquidity should be used for assets or strategic gains.
“Time is confirming our view that cash is king—and cash became an even bigger king during the last two to three years,” Váradi said. “This is certainly one of the principles that we’re sticking to. We’re going to make sure that we have cash on hand all the time—maybe more than prudently needed—to make sure that we have room to play, if sufficient opportunities arise. And this is really what we have done over the last two to three years,” he said.
On emergence from the pandemic, Wizz Air’s business was badly affected by the Russia-Ukraine war. “All of a sudden, we found 40% of our business next to the frontline,” he said. “Even worse, 11% of our total capacity at that time was allocated to Ukraine and Russia.”
Wizz Air went through a military-style operation to move its 280 Russia- and Ukraine-based staff. Of these, over 90% are still employed by Wizz. Váradi said this shows that Wizz Air is not just “a mindless capitalist animal, hunting for profit.”
“I think you should probably expect Wizz Air to be the first airline to go back to the market, whenever the war is over,” he said. “We watch it with a lot of interest and with a lot of commitment.”
Váradi was also quizzed on his expectations for this summer, following Europe’s significant operational challenges during the summer 2022 ramp-up. “You put it very diplomatically, saying that last summer was ‘challenging,’” he replied. “I think last summer was crap, to be honest.”
Wizz Air came away from that experience with some key lessons, including its over-reliance on other stakeholders. “If the supply chain breaks down, we’re going to break down with it too,” he said. “We have started isolating ourselves from the supply chain, to create resilience that we can control.” Váradi estimates that Wizz Air has invested £150-200 million ($186-248 million) since summer 2022, to cover spare aircraft and additional operational staff, such as standby pilots and cabin crew.
“Do I think the supply chain, the operating environment, is going to be great this summer? I don’t think so,” he said. “I don’t think it’s going to be a lot better than it was last year.”
While ground handlers may have learned lessons from 2022, increasing their resilience, Váradi believes the single biggest European challenge will be air traffic control (ATC). The ATC challenge is threefold. Firstly, there is a shortage of air traffic controllers, with a three-year training lead time. Secondly, 20% of European airspace is closed because of the Ukraine conflict, causing bottlenecks. Finally, military flight activity is intensifying, taking priority over commercial aviation.
“This is going to be massive,” Váradi said. “Lack of staff, congestion and a lot of military activities in civil airspace, so I’m not overly hopeful.”
The above article as also taken from Flightglobal.