Published on October 18th, 2015 | by Jim Lee0
Wizz Air overtakes Ryanair in Eastern European market and orders new Airbus A321 neo aircraft
According to anna.aero, the airline network news and analysis website, Wizz Air has grown seat capacity between Eastern and Western Europe on average by just over 16% per annum, over the past three years. This allowed the airline to overtake Ryanair and gain the number the one position in 2014. Ryanair has also shown growth within the same time period, but between October 2013 and October 2014, it recorded a 14% decline in capacity. However, although Wizz Air is the number one low cost airline in the market ahead of Ryanair, it is not number one in all Eastern European countries, with Ryanair for example, the leading airline in Poland, ahead of it.
So far in 2015, Wizz Air has opened 70 new routes, the majority of which connect Eastern and Western Europe. This included the airline’s first services to Belfast International, serving Vilnius and Katowice. As a result, Wizz Air has raised its profit forecast for the year, citing strong summer performance and this expanded network. Wizz Air estimates that it will grow capacity by around 18% (previously 17%) in the 2016 financial year, split approximately 17% in H1 and 19% in the second half of the financial year. As it had previously indicated, lower fuel prices are feeding through to lower air fares and the airline anticipates that the downward trend in unit revenues will continue in the second half of the financial year, although it has very limited visibility of demand in the final quarter of its financial year. This is because Europe’s legacy airlines are using low fuel prices to offer cheaper flights at the cost of profitability. The migration crisis sweeping Europe has so far had no impact on air travel, although as József Váradi, CEO of Wizz Air recently noted; “people don’t like going to places that are unsettled,” but he added “if borders remain closed or get closed periodically, that may push people from ground transportation to airlines and may create a positive impact on the industry.” Wizz Air now expects a net profit of between €190 million and €200 million, (excluding unusual and exceptional items), in the 2016 financial year. Earlier Wizz Air said it expected a net profit of between €175 million and €185 million for the year.
After 11 years Wizz Air refreshes its brand and livery
Wizz Air was founded in September 2003 and its first flight took place from Katowice, Poland on 19th May 2004. In its first 11 years, the airline has carried 90 million passengers and to mark its anniversary earlier this year, it announced a range of new enhancements aimed at giving a better customer experience, as well as a refreshed brand and livery. The new brand now has a fresh, more vibrant, sophisticated look and feel. Although its only Irish routes are now from Belfast, over its 11 year history, Wizz Air operated an extensive route network from Cork Airport. The airline operated out of Cork for over six years after beginning services from there in 2006. It terminated its remaining Cork services to Gdansk on 7th April 2013 and Poznan the following day, with Katowice ceasing on 18th May. It had earlier ended its services to Warsaw/Modlin, Vilnius and Wroclaw from Cork with effect from 13th January.
Wizz Air firms-up commitment for 110 Airbus A321 neo aircraft
In order to continue delivering strong growth for the next decade, Wizz Air announced on 12th September, that it had completed and signed a purchase agreement with Airbus, to acquire 110 A321neo aircraft. This firmed-up a commitment signed by way of a memorandum of understanding on 18th June last, at the Paris air show at Le Bourget. The agreement is the largest single order for the popular A321neo ever. At current list prices, the order is valued in excess of $13.7 billion (around €12.07 billion), although it has been confirmed that Airbus granted significant discounts from list prices to Wizz Air. The airline will retain flexibility in determining the most favourable method of financing the aircraft under the New Airbus Agreement. The deal pushes firm NEO orders above 4,300 aircraft. This order includes the latest A321neo ‘Airbus Cabin Flex configuration’ with 239 seats in 18 inch (457mm) comfort standard. Given the size of the commitments under the New Airbus Agreement relative to the Company, the purchase constitutes a ‘class 1 transaction’ under the Listing Rules and therefore entry into the New Airbus Agreement is conditional upon Wizz Air shareholder approval. This approval will be sought at a General Meeting to be held in due course.
New aircraft order providing flexibility to Wizz Air
Wizz Air also has an outstanding commitment to purchase a further 48 aircraft from Airbus, comprising 21 A320ceo (or current engine option) aircraft and 27 A321ceo aircraft (the ‘Existing Order’). The first Wizz Air A321ceo aircraft will enter service in November 2015 and will be equipped with 230 seats. All aircraft under the existing order are scheduled for delivery by 2018. However, under the an amendment to this agreement entered into with the signing of the ‘New Airbus Agreement’ (which is conditional on the new Airbus agreement coming into force), ten A320ceo aircraft currently scheduled for delivery in 2018, under the existing order, will be cancelled.
Of the 110 aircraft to be delivered to Wizz Air under the new agreement (between 2019 and 2024 inclusive), 51 aircraft will be for the planned replacement of existing aircraft as they are returned to lessors or sold. These Airbus neo aircraft provide additional efficiencies that will enable Wizz Air to offer even lower fares to the market and will ensure that it maintains its young, efficient, industry leading fleet. Under the terms of the new Airbus agreement, the Company is required to select the engines to be installed on the new aircraft by 31st December 2016.
The new Airbus agreement also provides for purchase rights for the purchase of an additional 90 A321neo aircraft. These purchase rights can be exercised in four batches by June 2017, June 2018, June 2019 and June 2020, respectively. Wizz Air has also negotiated a significant amount of flexibility with Airbus to ensure the aircraft delivery stream matches its operational needs, including the ability to substitute a certain number of A321neo aircraft, with the same number of A320neo aircraft.
Currently Wizz Air operates 63 A320 family aircraft on one of Central and Eastern Europe’s most extensive networks with over 380 routes from 22 bases. The new Airbus agreement maintains Wizz Air’s current strategy of operating a single fleet type – the Airbus A320 family. The advantages of a single fleet include one standard for pilot and crew training, no requirement for multiple crew reserve pools and a simpler support infrastructure for the fleet. Pilots and cabin crew will be easily interchangeable between A320ceo and A320neo family aircraft.
Commenting on the Airbus order József Váradi, Wizz Air Chief Executive said: “This order will help us to build on our strong market position in Central and Eastern Europe. The new aircraft will enable us to sustain our cost advantage through cabin innovations, the latest engine technology and other efficiency improvements, while enhancing our customer offering and experience. Airbus is a key partner for us and we believe they have the best aircraft to serve our markets and we are happy to be continuing our longstanding relationship with them”.
Airbus A321ceo aircraft financing
Following the A321neo aircraft order announcement, Wizz Air subsequently confirmed that it had signed an agreement with CDB Leasing (the leasing arm of China Development Bank), to finance six Airbus A321ceo aircraft, including Wizz Air’s first two A321s scheduled for delivery in November and December. Mr Váradi noted that Wizz Air had developed a strong relationship with CDB Leasing, which already finances six of its existing A320s, delivered in 2014-2015. “They continue to support our growth, now financing the first of our new A321s” he added.
Wizz Air extends line maintenance contract for its growing fleet
Wizz Air has also extended its contract with Lufthansa Technik Maintenance International (LTMI) for line maintenance services in Romania and Slovakia. The new agreement runs for eight years from November 2015 and reflects updated conditions and scope of work.
LTMI currently supports Wizz Air with line maintenance services for 16 A320-200 aircraft in Romania and other countries. Under the new agreement, LTMI will perform line maintenance at six stations in Romania and Slovakia, with the possibility of enlarging the network with new stations. LTMI will look after the airline’s growing fleet, including the new A321neo aircraft.
As part of the agreement, LTMI will continue to manage the line maintenance network and be responsible for the entire fleet stationed in this region. Its comprehensive services include a single point of contact for all line maintenance issues, preventive maintenance, and performance monitoring of the fleet managed by LTMI.
The Wizz Air experience
So how does Wizz Air measure up to its main low cost rival Ryanair? I had the opportunity to find out on a recent trip to Prague via Luton. The first leg from Dublin to Luton was on Ryanair’s Boeing 737-8AS (W), EI-EVA, a fairly young aircraft delivered on 12th January 2012, while the Prague sector was operated by Wizz Air’s Airbus 320-232, HA-LWK, a slightly older aircraft, delivered on 26th May 2011. While the Airbus 320 was far more comfortable than the 737, all in all, Ryanair has certainly upped its game, particularly in regard to its more customer friendly website, and the lack of traps to catch the unwary, compared to Wizz Air.
Baggage is a good example of this, with both airlines having a bewildering range of rates based on distance, when and how booked. While Wizz Air allows you to check in up to six pieces of baggage not exceeding 32 kilograms each, each piece of baggage to be checked-in is subject to a baggage fee, payable per bag, per flight and per passenger. The first three pieces can be purchased online, but the subsequent three must be paid for at the airport. On the Luton to Prague route for example, a 23 kg bag paid for during the booking process will cost £14.50 (around €19.72), while a 32 kg bag will cost £22.00 (around €29.92). If you add a bag online after the booking, the cost rises to £17.00 (around €23.12) and £24.00 (around €32.65) respectively, while the same bags checked in at the airport costs £36.50 (around €49.65) and £51.00 (around €69.37) respectively. Ryanair allows you to check in up to two bags of either 15kg or 20kg. A 15kg bag costs £20/€20 online and £40/€40 at the airport on the Dublin – Prague route at this time of the year. Ryanair also allows one cabin bag weighing up to 10 kg with maximum dimensions of 55cm x 40cm x 20cm, plus one small bag up to 35 x 20 x 20 cms may be carried per passenger. Exceeding this allowance would incur the airport check in fee of £40/€40. Wizz on the other hand, has the concept of small and large cabin baggage, and that’s where you need to be careful. Only one piece of small cabin baggage, 42 x 32 x 25 cms or smaller, can be taken onboard, free of charge. It must fit under the seat in front of you. Otherwise it is considered large cabin baggage, which cannot exceed 56 x 45 x 25 cms. It must fit in the overhead compartment. You cannot carry, for example, a women’s purse or laptop bag, apart from this hand baggage, although goods purchased at the airport after security will be allowed in the cabin for free. The cost of a large cabin bag added during the booking process is £10.00 (around €13.60), £11.50 (around €15.64) if added online later, and £25.50 (around €34.69) if purchased at the airport. So your camera or a women’s purse could cost you an extra £25.50.
Wizz Air’s boarding at Luton operated by Swissport can only be described as shambolic. We were left in a queue at the gate (with priority boarding!) for nearly an hour, then endured a further 35 minutes in an unventilated, hot and sweaty stairwell, while the ground crew struggled to load bags on a much delayed flight. Ryanair on the other hand departed and arrived on time, with the boarding and deplaning achieved, without fuss or formality. On balance the Ryanair experience was far superior.