Wizz Air today lowered its full year profits forecast due to soaring fuel and flight disruption costs.
The eastern and central European budget carrier revealed that its full year net profit guidance had been reduced to a range of between €270 million and €300 million.
Higher fuel prices created an estimated €80 million “cost headwind” for the full year, with half expected to be offset through “cost and capacity discipline”.
Capacity growth for the second half of the airline’s financial year has been trimmed from 18% to 14% on the back of the rising fuel price.
The first half of the financial year was “particularly challenging” with the carrier having to cancel 251 flights.
Wizz Air said it had taken steps to address this level of disruption and is seeing an improved performance with only 11 flights cancelled so far in the third quarter.
But the airline incurred an “unusually high level” of passenger disruption costs of €16.8 million in the six months to September 30 compared to €8.6 million in the previous year.
“Disruption costs normalised from the end of August in line with the improved operating performance,” Wizz Air said.
Despite this, the airline saw first half revenue rise by 20% year-on-year to €1.3 billion with profits up by 1.2% to €292.2 million.
Chief executive Jozsef Varadi said: “The operating environment in the first half was particularly challenging for all European airlines with unprecedented disruptions caused by air traffic strikes, slot constraints as well as heavily congested airports.
“These conditions also coincided with the company’s ramp up of our new UK airline, Wizz Air UK, and an extensive delivery programme of 17 aircraft in 17 weeks.
“Our operations are now back on track with October and November KPIs ahead of last year.
“The encouraging revenue environment, robust demand and an improved operational performance combined with our relentless focus on costs will enable the company to offset approximately half of the fuel headwind which is estimated at around €80 million for the full year and disruption costs.
“As a result our full year net profit guidance is lowered to a range of between €270 million and €300 million.”
The arrival of “game-changing, well-priced” A321neo aircraft into our fleet in the fourth quarter, financed at attractive levels, will enable Wizz Air to increase its cost advantage further, Varadi said.
“Our ultra-low cost business model provides a significant competitive advantage in an environment of higher fuel prices.” He added.
“As Wizz Air continues to drive its cost base even lower and profitably stimulate traffic, this advantage allows us to capture an even greater share of our market and extend our reach.
“We anticipate the capacity rationalisation resulting from this increased pressure on our competitors will result in a better yield environment.”
Fiona Cincotta, senior market analyst at Cityindex, said: “The downgrade is disappointing but not entirely surprising given the current fuel-price environment.
“The good news is that disruption from industrial action appears to be easing and ticket prices are rising.
“Management is at least handling the things that it can control reasonably well. Revenue growth is keeping pace with capacity expansions, as load factors improve.
“Wizz Air still has a strong balance sheet, giving it firepower to invest in new fuel-efficient aircraft, which should ultimately cut costs over the long haul.”