Is the profit party over? Wizz Air reports 44% drop in profit

Take Skift

Wizz Air joins a growing list of airlines that have seen their profits plummet in the last quarter, with questions about whether this is a mild correction or the start of something more serious.

Gordon Smith

Wizz Air is being hit harder than most by the industry-wide engine grounding. On Thursday, the European low-cost giant gave investors an update detailing how badly its fleet is being affected.

At the end of June, 46 Wizz Air planes were out of service due to inspections – that’s about one in five planes.

The root cause is quality issues with some of the Pratt & Whitney engines that power the airline’s Airbus A320neo aircraft. These new-generation jets make up almost two-thirds of Wizz Air’s fleet.

In July 2023, the manufacturer discovered that some of its turbofan transmission units manufactured between 2015 and 2021 contained contaminated metal powder. If left unchecked, this could disrupt the normal operation of the engines.

In a sobering update, Wizz predicted the problem won’t go away anytime soon. On Thursday, the airline said it expects the groundings to peak in September 2025, when 47 planes are expected to be taken out of service. While that’s slightly down from its previous estimate of 50 planes, the average time to repair each engine is 300 days, making each repair incredibly time-consuming and potentially expensive.

Wizz is working to increase its spare parts pool to limit the impact on operations, but tight global supply chains are making this difficult.

The company noted that the compensation from Pratt & Whitney does not fully cover the costs of the grounding. The payments cover the period until the engines are returned to the airline, but do not cover downtime while they are re-deployed to regular service. Wizz confirmed that “management is negotiating engine return targets for next year, as well as compensation rates and structure.”

What else affects Wizz?

Wizz is also facing separate capacity issues stemming from delays in deliveries to Airbus. The airline says it could see between 30 and 35 planes delayed next year, which could impact its fleet programme through 2026 and beyond. The Budapest-based operator is not alone in this regard, with almost every major airline experiencing delays from manufacturers.

Wizz also flagged “ongoing structural issues with air traffic control (ATC)”. It stressed that the first flights of the day were delayed, which could lead to more cancellations later in the day. Ryanair’s chief operating officer, Neal MacMahon, recently criticised ATC on the continent, calling it “chaotic”.

Despite the challenges, Wizz Air’s punctuality improved during the quarter, from 60.5% to 67.6% of flights.

What is the ultimate impact?

The update on the grounded planes was included in Wizz Air’s second-quarter earnings report. The budget airline reported a 44% drop in operating profit for the quarter ended June 30, with engine problems cited as a key factor.

Wizz also lowered its forecast for the coming year. Net income is now expected to be between 350 million euros and 450 million euros ($378 million and $486 million), down significantly from its previous estimate of 500 million to 600 million euros.

Responding to the figures, Wizz Air CEO József Váradi offered an optimistic assessment: “Despite the competitive environment and ongoing challenges in the supply chain, our strategic focus on offering the lowest fares, improving our network and maintaining high operational efficiency has borne fruit.

“Looking ahead, we see opportunities stabilizing and our focus is on continuing to optimize our operations, with a focus on improving our most profitable bases and increasing efficiencies,” he added.

What’s happening on other airlines?

Wizz is the latest European carrier to report financial problems, with Lufthansa Group, Air France-KLM and Norwegian all expressing concerns about falling profit margins in the coming months.

Just last week, Ryanair – Wizz’s bigger rival – spooked markets by cutting its ticket price forecasts. The Irish budget airline said prices would be “significantly lower” for the all-important summer period. Ryanair’s average ticket price fell by almost 15% in the April-June quarter compared with the same period in 2023.

Despite a 10 percent increase in passenger numbers, the airline’s profits fell by 46 percent, yet it remains one of the most profitable major airlines in the world.

Across the Atlantic, Southwest recently reported a significant profit decline as it announced it would introduce premium seating to boost declining revenue. CEO Bob Jordan said it was implementing “urgent and deliberate steps to mitigate near-term revenue challenges.”

American Airlines also reported a 46 percent drop in profit last week as the company struggles to cope with the fallout from a controversial distribution strategy that led to the departure of its chief commercial officer.