Reopening Hopes Give Wizz Air Wings By

© Reuters.

By Geoffrey Smith — The company’s traffic was down nearly 80% in its last report, and its main business is still tightly restricted across all of its major markets. It’s just borrowed another 500 million euros ($600 million), having lost over 110 million in the past three months, and it’s not able to give guidance for the current year.

All in all, it might seem like the wrong time for Wizz Air (LON:) to be posting all-time highs, but the budget airline with a focus on central and eastern European routes is going from strength to strength.

Like Wizz’s customers, desperate for a bit of sunshine or a family visit, investors are looking through the many problems that the pandemic is still causing the industry to focus on the glittering prize ahead: the reopening of the European travel market, enabled by mass vaccination campaigns.  

The stock is up nearly 60% since Pfizer (NYSE:) and BioNTech put an end to the pandemic in sight by announcing the had made the world’s first vaccine effective against Covid-19 (an effectiveness emphatically endorsed in an Israeli study at the weekend using real-world data).

It added another 2.4% on Monday in London, as details leaked of Prime Minister Boris Johnson’s plans to relax curbs on business and social life, even though there was little that suggested the airline industry is in for any immediate relief. If anything, it’s been the reverse: the U.K. has tightened restrictions on international travel to stop the spread of new variants of Covid-19, even as it has talked up the prospect of an early reopening of the domestic economy.

Johnson is due to present a timetable for the U.K. to exit lockdowns at 10:30 AM ET (1530 GMT).

 Wizz has been comfortably the best performer of all European airline stocks since the pandemic hit, up 13% from a year ago. Its biggest strength has been its flexibility on costs: most of its personnel are employed in central Europe, where labor law is less restrictive than in, say, Germany or Spain.  Another strength is the age of its fleet: at six years old, it’s one of the youngest in the world, keeping fuel costs low and providing some defense against the likely rise in carbon costs that the industry will face in coming years. And, unlike EasyJet, it hasn’t been locked into expensive aircraft purchase contracts.

But just as importantly, it doesn’t have a legion of pensioners, often on generous defined benefit plans, acting as a permanent drain on cash flow. The scale of this problem at others was in evidence on Monday, when International Airlines Group (LON:) said it had managed to improve the liquidity position of British Airways by postponing 450 million pounds in contributions to its (already restructured) pension scheme.  It’s pledging other assets to its pensioners in lieu of the money in the meantime, but aims to resume contributions in September (BA won’t be sending any money upstairs to IAG as dividends until 2024, by contrast). BA said on Monday it has also clinched the 2 billion pound, part-government-guaranteed loan it announced a few weeks ago. 

Wizz, too, has been borrowing to shore up its cash position, with a new 500 million euro note just earlier this month. That’s enough to avert liquidity problems at least until the summer, by which time cash should again be flowing from more typical sources.

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