easyJet and Wizz Air’s road to profitability? Add ons, and lots of them

© Reuters. easyJet and Wizz Air’s road to profitability? Add ons, and lots of them

Proactive Investors - As expected, budget carriers easyJet plc (LON:EZJ) and Wizz Air Holdings PLC (LON:WIZZ) posted net operating losses in their respective earnings this week, but both managed to significantly close the gap year on year.

WizzAir’s operating losses of €155.5mln represented a 27% improvement, while easyJet’s headline losses before tax improved 38% to £133mln.

Passenger numbers also saw marked improvements.

easyJet reported a 47% increase in passenger numbers, a 36% increase in revenue per seat (RPS), and a 10-point rise in the load factor (being the ratio between passengers and available seats) to 87%.

Wizz Air increased its passenger numbers by 59% and its RPS by 40%. Interestingly, the Hungarian carrier’s load factor was essentially the same as easyJet’s, having increased 10.2 percentage points to 87.3%.

These strong figures prove that budget carriers are benefiting from a trade down among cash-strapped travellers, but the substantial increase what the airlines call ‘ancillary expenses’ shows that additional costs, ranging from excess baggage to on-board refreshments, are contributing to the sector’s recovery as much as raw ticket sales.

easyJet’s per-seat ancillary yields jumped 36% to £20.12 this year, while Wizz Air’s ancillary yield increased by 14.4% to €36.1 per passenger.

To put it another way, ancillary revenues comprise around 46% of Wizz Air’s top line, while easyJet’s is a fair bit lighter at 27.5% of the top line (although the latter has been on the march for longer, with ancillary revenues nearly doubling since 2019).

The minutiae of each carrier’s comparable performance could be picked apart, but the bottom line is, should both maintain their current trajectories, both would very likely return to a profitable business model sooner rather than later, thanks in no small part to these passenger add ons.

easyJet’s chief executive Johan Lundgren’s has high hopes for a return to profitability, telling shareholders: “In summary, we expect to see our winter loss reduce significantly over the first half compared to last year. This will set us firmly on the path to delivering a full year profit, where we anticipate beating the current market expectation enabling us to create value for customers, investors and the economies we serve.”

Wizz Air’s chief executive József Váradi was a bit more pragmatic, stating: “We continue to expect an overall net loss in 2023, but remain confident that 2024 will be profitable (subject to no adverse pandemic or geopolitical events).”

The markets have started to reflect Wizz Air’s more modest forecast.

easyJet’s share price has rallied over 17% over the past five trading sessions, while Wizz Air’s share price has risen a little over 5% in the same period.

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