Falling by another quarter in value this week, Wizz Air‘s (LSE:WIZZ) share price over the last year has been nothing short of disastrous. Total losses are 50%, making the budget airline one of the FTSE 250‘s worst-performing shares.
Full-year results on Thursday (5 April) revealed a mix of both opportunities and challenges for the company. But the market chose to focus on the shortcomings and marched towards the exits again.
According to analyst Adam Vettese of eToro, low-cost airlines are experiencing resilient demand and dominance in Central and Eastern Europe. Along with its modern, fuel-efficient fleet, these trends position Wizz for potential growth longer term
So why are Wizz Air shares sinking? And should patient investors consider opening a position in the embattled airline?
Profits miss forecasts
Thursday’s update showed Wizz Air’s revenues rose 3.8% in the 12 months to March, to €5.3bn. It enjoyed record traffic of 63.4m passengers — up 2.2% year on year — as demand across the broader travel sector continued to increase.
Yet a combination of increasing costs and operational issues meant it’s been unable to fully capitalise on the fertile market. Operating profit actually tanked 61.7% from fiscal 2024, to €167.5m, while net profit was down 41.5% at €213.9m.
The latter missed the €250m-€300m updated target released in January, the second profit warning of the financial year. As if this wasn’t bad enough, Wizz Air spooked investors further by failing to release guidance for the current fiscal period.
Fleet issues
The chief problem is that engine issues have grounded around a fifth of the company’s fleet. The scale of the issue’s far greater than investors had initially expected, and remedial measures from the power unit manufacturer isn’t providing total protection.
Analyst Susannah Streeter of Hargreaves Lansdown notes that the two-year compensation package with Pratt & Whitney, the engine manufacturer, will only mitigate some but not all of operational and financial impacts on the business
Is the airline a Buy?
Wizz Air’s problems mean it’s failed to enjoy the price upswing of the UK’s other major listed airlines in recent times. IAG shares are up 91.9% over the past year. easyJet‘s share price is up 22.4%.
As a consequence, the emerging markets specialist changes hands on a far reduced price-to-earnings (P/E) multiple compared to its peers. This is 5.1 times compared with 6.3 times and 8.3 times for IAG and easyJet respectively.
Does this represent attractive value for long-term investors? I’m not so sure. City analysts expect earnings to rise 109% this financial year. But with tough economic conditions tipped to persist — and some analysts tipping aircraft groundings to continue for maybe two-three years — this bullish forecasts looks more than a little fragile, in my view.
And looking longer term, it faces the lasting dangers of mounting competition, volatile fuel and labour costs, airport and air traffic control disruptions, and geopolitical issues impacting travel to key destinations.
So despite its cheapness, I think investors should consider leaving Wizz Air shares on the tarmac and look at other UK stocks.
