Wizz Air Proves “Cash is King”

 - July 22, 2020, 11:58 AM
A WizzAir Airbus A320 takes off from Budapest in 2015. (Photo: Flickr: Creative Commons (BY) by Sony SLT-A57)

To privately-owned Hungarian airline Wizz Air, “cash is king,” as CEO Jozsef Varadi quipped during a Wednesday FIA Connect Spotlight Session. Carrying enough liquidity to last it years rather than months during the Covid crisis, the LCC’s management believes in cash preservation precisely for lean times such as these. The airline hasn’t enjoyed the kind of government support many flag carriers have received, leaving it with little choice but to rely on its own resources to survive the Covid pandemic.

“We entered March with €1.5 billion of free cash and most of it has been preserved ever since the start of the crisis,” said Varadi. “The very worst situation for us is when we don’t operate. This is when we burn the most cash. At the moment we only operate on a cash contribution basis, so actually we are creating cash. So not only are we preserving, we are adding to our liquidity.”

Varadi explained that managers of publicly-traded airlines typically run their businesses on a “pay-for-profit” basis because of their mindfulness of the stock market. “You have to run this business for the long run,” he said. “And liquidity and cash are critical components of this business model.”

In terms of operations, Wizz Air has managed to recover 77 percent of its 2019 capacity compared with the European average of 38 percent. However, as countries begin to reintroduce travel restrictions and flight bans due to surges in Covid cases, Varadi worries that industry gains might reverse. “I think the next period of time is going to be full of uncertainties in terms of the operating environment,” he said. “I think it will impose a challenge to the industry in how to be flexible and if you have to adapt your network design and capacity plan, you should do that. This is what we’re learning through this period, that if we get stuck in one country or one market because of restrictions, how do your redeploy capacity in other markets?”

The answer lies with operational agility, and Wizz Air has restructured its network and opened “six or seven” new bases, explained Varadi. Still, Wizz Air harbors no intention to change its operational or financial philosophies, notwithstanding fears that Covid could change the fundamentals of the industry forever.

“I don’t think the industry will change in the long run fundamentally,” he insisted. “I think these concepts will prevail. Yes, in this point of time you have more guidance when it comes to health and safety and those sort of measures, but you recall in 2001, when safety was at stake, a lot of people believed that would change the industry forever and people will not fly. You look at it now and ever more people have elected to fly. I think the same is going to continue going forward.”