Both Wizz Air (LSE: WIZZ) and Ryanair are pioneers of making Europe simultaneously affordable and uncomfortable for the holidaymaker. My guilty pleasure is buying flights for the price of restaurant meals: a personal best is flying my father, brother, and me to Bremen and back for £19.99 each (sláinte, Michael O’Leary). For a long time the Irish harp was the people’s champion, but in recent years, Wizz has expanded from regional power to international player, with 137 routes and counting. After waging fare-wars with Ryanair, CEO Jozsef Varadi’s latest target is the mid-tier airlines. Like easyJet.
Wizz Air is strongest in Eastern Europe, offering flights to, and within, the old Communist bloc. It also has a market stronghold in Germany, where its migrant population can inexpensively fly back and forth to their home countries. Otherwise, its presence in Western Europe is relatively scarce, and thus the recent failed easyJet takeover is consistent with the Hungarian airline’s aim to penetrate more mainstream routes. In this industry, consumers need one of two things: total cheapness or total comfort. easyJet, which neither competes with rock-bottom fares nor offers unbridled luxury, and which has refused to rule out being acquired in the future, may be merely holding out for a better offer.
Wizz Air shares, however, are currently trading at 4,816p as I write, down 1.97% from the previous close. While it may be too soon to suggest another bid is in the pipeline, Wizz’s long-term strategy is to eliminate competition and acquiring rivals is often thought the best way to do so – after all, you can always repaint orange planes purple. The shares’ one-year high is 5,595p; worth a pop if there is to be one more travel boom when the UK announces an end to the traffic light system in October. Wizz is also more lockdown-resistant than its competitors: in the chaotic summer of 2020, it pledged to fly at pre-Covid capacities, despite widespread uncertainty at the time. This is reassuring to those who are wary of further curbs on travel.
Wizz is on the offensive in the UK; Gatwick airport is seen as a key territory to pinch from its rivals. A base has also been confirmed in Cardiff airport, though note that its release has been pushed back until 2022. The management are up for it: Varadi has been promised a share bonus of £100m if he can achieved a compounded 20% enhancement of the share price within five years. For investors concerned about airlines’ climate implications, it is somewhat reassuring to know that Wizz’s fleet has introduced the Airbus A321neo aircraft – reportedly the greenest plane in its class.
At present, nothing is stopping Wizz but the symbolic Iron Curtain; bring it down and Western Europe will fall to the Purple Army. I’m planning to get in before it does!
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Joseph Wilkins has no position in any of the shares mentioned. The Motley Fool UK has recommended Wizz Air Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.