Wizz Air Holdings (LSE: WIZZ) shares fell 10% when the market opened Thursday. They regained some of the loss, but are still down 7%, at the time of writing.
The fall comes in response to a third-quarter update. The period saw passenger numbers up 59% from the same period last year, with revenue more than doubling to €911.7m. Ticket revenue per passenger increased by 79.9%, which suggests flyers are not being put off too much by today’s higher prices.
Wizz Air didn’t managed to achieve a profit though. EBITDA came in slightly negative, with a modest loss of €2.8m. But that still looks like pretty decent progress to me, after the quarter to December 2021 saw an €87.5m loss.
Contrast
These figures come a day after easyJet posted a first-quarter loss. But in that case, the shares continued their upward run and rose further on the day. Maybe the difference is in the outlook, with easyJet having said it “anticipates beating the current market profit expectations for FY23“.
By contrast, Wizz Air chief executive József Váradi said: “We continue to expect an overall net loss in F23, but remain confident that F24 will be profitable (subject to no adverse pandemic or geopolitical events).“
That is still in line with expectations. Forecasts suggest a loss for Wizz Air for the current year, followed by a return to profit in 2023-24. But it’s a volatile sector, and investors in airlines can quickly change their minds.
Costs
Though airlines do seem to be heading for a decent recovery, cost pressures continue to plague their financial performances.
Total operating costs for Wizz in the quarter rose by a whopping 71.6%. A big part of that comes from a 61.6% rise in fuel unit costs per available seat kilometre. Ex-fuel unit costs however did decline a little. Rising costs contributed to a reduction in cash of 2.4%, to €1,367.1m.
Looking towards the full year, I’d want to see these costs coming down. Wizz Air had lagged its rivals in terms of fuel cost hedging too, though it says it’s caught up with them now.
Verdict?
What’s my verdict on Wizz Air shares after these figures? Well, I’ve never thought of the aviation sector as an attractive investment prospect. That’s mainly because I see companies with little power over their costs, and I see no real competitive advantage between airlines.
Saying that, I feel encouraged by the ongoing recovery in the business. As well as the shorter-haul airlines, British Airways owner International Consolidates Airlines has seen its shares pick up strongly since October. And a nice recovery situation can often tempt me to go for a purchase.
But I just can’t turn away from the big risks. They include the cost-of-living crisis, unpredictable fuel costs, uncertain global outlooks, and the continuing war in Ukraine. I do see a decent chance of medium-term gains here. But I’ll sit out the risk and just keep watching.
