Wizz Air looks to fill capacity vacuum by increasing growth plans

July 25, 2019 2:31 AM

By Alistair Smout

LONDON (Reuters) - Low-cost airline Wizz Air has raised its full-year capacity growth outlook after a strong start to its financial year, benefiting as struggling rivals cut their expansion plans.

Shares in Wizz rose 5.5% after the central and eastern European-focused carrier said it was confident in reiterating its full-year outlook, in contrast to profit warnings from the likes of Lufthansa.

"We are seeing some overall capacity decline in the marketplace. There is a strategic opportunity for us to step up and fill the vacuum in the market," Chief Executive Jozsef Varadi told Reuters.

"The combination of that capacity situation and our own financial strengths made us decide to up our capacity plan."

The airline, which is headquartered in Budapest, said it was lifting its capacity growth rate to 20% from 16% after posting a record net profit of 72.4 million euros ($80.6 million) in the three months to June 30, its first-quarter trading period.

Wizz competes with Lufthansa's Eurowings brand at central European airports such as Vienna.

Poor margins at Eurowings were a major reason for Lufthansa's June profit warning, with CEO Carsten Spohr saying zero growth for the brand was "absolutely rational" in the current market.

Ryanair has also cut growth plans due to delays in deliveries of Boeing's (NYSE: BA) grounded 737 MAX jet.

In contrast, Wizz said it had added an aircraft to its Vienna operations and deployed extra planes to London Luton and Poland's Krakow in the first quarter.

Varadi added that the upgrading of its fleet from A320s to larger, more efficient A321s would help Wizz improve its strategic cost position.

"Simply, we are a lower cost operator today relative to the balance of the industry than before," Varadi said.

Wizz reiterated its guidance for full-year net profit to reach 320 million-350 million euros.

Analysts at Goodbody said the update reinforced the brokerage view that results would come in toward the top of that range.

The airline said it should still make slightly positive revenue on each available seat kilometer (RASK) in the year, despite the increase in capacity.

"We can say that Wizz management has huge confidence that they can grow the business at this rate and still deliver positive overall RASK," analysts at Goodbody said in a note.

"Given these trends, we remain confident being at the top of the guidance range."

(Reporting by Alistair Smout; Editing by James Davey and Jan Harvey)