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Highlights:
- Profit Doubts: Analysts raise concerns about Wizz Air's ability to meet profit targets amid rising operational costs and potential net losses.
- Cost Challenges: Expected revenue growth per seat may be overshadowed by significant increases in non-fuel costs.
- Lowered Forecasts: Deutsche Bank cuts Wizz Air's profit outlook and share price target, reflecting skepticism about its financial prospects.
Wizz Air Holdings PLC (AIM:WIZZ) is facing scrutiny regarding its ambitious profit targets for the financial year, as analysts at Deutsche Bank express concerns over the airline’s rising costs. Analyst Jaime Rowbotham suggests that the low-cost carrier may struggle to meet its earnings guidance, even with projected revenue increases.
To achieve the lower end of its profit forecast, set at €350 million for the financial year ending March 2025 (FY25), Wizz Air needs to secure approximately €40 million in net profit during the second half of the year. This target represents a significant recovery from the €35 million net loss recorded during the same period last year. However, Deutsche Bank anticipates a net loss of €48 million for Wizz Air in the upcoming half, raising doubts about the airline’s ability to meet its profit goals.
On the revenue side, Wizz Air is projecting an increase in revenue per available seat kilometre (RASK), a critical metric that gauges revenue generated for each kilometre flown per available seat. The airline is looking for mid-single-digit growth in RASK for the entire year, supported by an anticipated 12% year-on-year increase in the second half. This optimistic outlook is partly attributed to easier comparisons with the previous year’s performance.
Despite these revenue expectations, rising operational costs threaten to overshadow any improvements. Non-fuel costs—excluding miscellaneous expenses and depreciation—rose by 16% year-on-year in the first quarter of FY25. Deutsche Bank projects a similar increase of 17% in the second quarter. While a slowdown to increase in the second half is anticipated, attributed to resolving staffing inefficiencies and better airport charge management, the bank warns that non-fuel unit costs could increase for the full year. This projection significantly exceeds Wizz Air's guidance of a high-single-digit rise.
As a result, Deutsche Bank has revised its profit after tax forecast for Wizz Air, reducing it by 6% from €280 million to €263 million. This adjustment positions the estimate 14% below the Bloomberg consensus of €307 million. Reflecting these concerns, the bank has also lowered its target price for Wizz Air shares from 1,750p to 1,650p, while maintaining a 'Hold' recommendation. Following these developments, Wizz Air's shares closed at 1,318p and saw a slight increase of 1.1% in afternoon trading, reaching 1,333p.
