Wizz Air, the low-cost carrier, is expanding rapidly in Central and Eastern Europe.
Chris J. Ratcliffe/Bloomberg
The composition of European airspace has dramatically changed in the past week. Ukraine is a no-fly zone for commercial aircraft, and Russia has banned airlines from 36 countries, including all 27 European Union member nations, from using its airspace in retaliation for Western sanctions.
The airline sector’s recovery has hit multiple bouts of turbulence in the past year. The industry was looking optimistically toward the spring and summer months—until Russia invaded Ukraine. Despite the obvious risks and uncertainties, the steep stock declines of the past month may tempt investors to take a closer look at some of Europe’s best carriers.
Hungarian low-cost airline Wizz Air Holdings (ticker: WIZZ.U.K.), a rapidly expanding dominant player in Central and Eastern Europe, has been among the worst affected carriers. The stock has fallen almost 40% since its 2022 high on Feb. 10.
In many ways, that isn’t surprising—the carrier has the greatest exposure to Russia and Ukraine, which together account for 9.5% of its first half of 2022 capacity, Raymond James analysts say. The next highest is low-cost rival Ryanair Holdings (RYA.Ireland), at 2.4%.
Wizz Air is also more exposed than others to higher oil prices, after adopting a “no hedge” policy last year to prioritize a strong cash balance. For those reasons, it’s a riskier call than other carriers, but there’s more potential upside. Peel Hunt analyst Alex Paterson says the stock could be in line for a “peace dividend.” The airline announced a major expansion into Ukraine only in October, planning for significant growth in the summer.
“Peace would present an opportunity to expand, potentially more than initially planned, as others have exited and may not return quickly,” says Paterson, who has a Hold rating but says he would be more positive if peace prevails.
Wizz Air flies more than 700 routes across Europe and beyond, operating at 151 airports in 44 different countries. It carried 40 million passengers in the year ended March 2020, before the pandemic took hold. Analysts expect Wizz Air revenue to reach 3.7 billion euros ($4.1 billion) in the year ending March 2023, up from an estimated €1.7 billion in the year to March 2022, as its expansion continues.
Morningstar analyst Joachim Kotze says the impact of the Russia-Ukraine crisis on Wizz Air “may be mitigated through the redeployment of capacity to other growing markets.” Kotze has a Buy rating and a 68 pounds sterling ($91) price target, implying a 125% upside to Thursday’s closing price.
CEO József Váradi said in a statement Wednesday that Wizz Air is working through “operational challenges arising from the crisis in Ukraine, and we are redistributing capacity to routes and bases where we can drive demand” as a low-cost carrier.
AlphaValue analyst Yi Zhong has a price target of £38.38, implying a 27% upside to Thursday’s close. He tells Barron’s that the company’s revenue could be hurt by the suspension of some routes and a reduced willingness to travel.
For those less optimistic about the prospect of peace, or with not quite as strong a stomach, Ryanair may be worth a look. Raymond James analyst Savanthi Syth says that with higher fuel prices, Ryanair and International Consolidated Airlines Group (IAG.U.K.), which owns British Airways, “stand out as relatively better positioned among scheduled service airlines,” due to a mix of hedges, pricing power, and stronger balance sheets.
Ryanair’s stock has also been hit in recent weeks, falling 23% since Feb. 10. Analysts are bullish—83% have a Buy rating, according to FactSet data, with an average target price of €19.72, or 36% upside.
Write to Callum Keown at [email protected]
