Shares in Wizz Air (LON: WIZZ) were trending down this week after the low-cost European airline released a disappointing annual financial report last week. The company, which was founded in 2003 and now has a fleet size of 142 aircraft serving 44 countries across Europe, North Africa and the Middle East, warned it would incur further losses in the first quarter to remain in the red.
The news comes off the back of a turbulent period for the airline industry in general which has seen airport chaos due to the combination of staff shortages and booking increases, which have resulted in widespread flight cancellations. Both retail and institutional investors are now on high alert when it comes to investing in companies operating within the aviation industry.
What’s going wrong at Wizz Air?
Covering the 12 months to 31st March, Wizz Air’s financial report revealed that the company suffered an annual loss of €642.5 million, swelling from the €576 million loss experienced a year earlier. The losses are set to continue into 2023 as the company also highlighted an expected operating loss for Q1 2023.
Furthermore, although total revenue more than doubled to €1.66 billion as mass Covid-19 vaccination rollouts encouraged Europeans to take foreign holidays, operating expenses rose by almost €1 billion. The upsurge in operating expenses has been driven by both rising oil prices and passenger capacity increases, which are predicted to have led to fuel costs rising by around 87%.
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In an attempt to stem the widening financial losses, Wizz Air has recruited more than 2,200 people over the past year and expects to have 6,700 staff by the end of the summer, up from about 4,000 people before the onset of the Covid-19 pandemic.
What do Wizz Air’s investment prospects look like?
Nevertheless, Wizz Air sounded rather positive about some of the issues weighing on the airline industry today. The company said it believes it is in the “endemic phase of Covid-19” and that it has “managed the trading impact from the war in Ukraine” which has severely disrupted its operations in Eastern Europe over the past few months.
There is little doubt that Wizz Air and other airlines represent potentially profitable investment opportunities as consumer demand for travel rebounds, but the uncertain outlook is plagued by several headwinds including what is at the forefront of the market’s mind at present. In the short-term, it is difficult to see the company overcoming these issues, but the long-term future could turn out to be more promising. Wizz Air stated that, in light of poor visibility and a volatile macroeconomic environment, it would not be able to provide predictions on its financial successes beyond Q1 2023.