"I am aware that when airports are congested, I cancel flights for passengers at the last moment or leave them 300 kilometers from the place they are trying to get to and tell them to manage on their own, I am not providing the best flight experience," Wizz Air president Robert Carey regretfully tells "Globes."
With the removal of virtually all Covid restrictions in recent weeks, flight fever has returned big time and was clearly bubbling beneath the surface, waiting to boil over, both in Israel and worldwide. But the combination of workforce shortages in the airlines and mainly at airports and ground services companies has created the chaos featuring so prominently in the media and social media.
In May, 1.63 million passengers passed through Ben Gurion airport, almost six times the number that traveled in May 2021. Nearly 20% flew on low-cost flights and by the end of June, Hungarian low-cost carrier Wizz Air would have flown 114,000 passengers to and from Israel. In recent weeks, the airline's customers have undergone chaotic experiences. Two weeks ago, a flight from Ben Gurion airport to Bulgaria waited seven hours on the ground and because of a fault that did not allow the plane to take off full, only some of the passengers, randomly chosen by computer, eventually took off. In May, a flight from Tel Aviv to Venice, landed 150 kilometers away in Bologna, with no travel-on arrangements put in place. In April, a flight from Tel Aviv to London Gatwick was delayed for five hours and then redirected to Doncaster, 300 kilometers north of London, where the passengers were left to fend for themselves in the early hours of the morning. Last minute flight cancellations don't make the headlines and are not uncommon.
Wizz Air operates in Israel through three companies: Wizz Air Hungary, the largest, Wizz Air UK, set up after Brexit so that the company could keep operating in Britain, and Wizz Air Abu Dhabi, opened just over a year ago and serving as one of the national carriers of the UAE.
We will cancel proactively some of the flights"
The overcrowded market and chaos are by no means just an Israeli phenomenon. The UK is one of Wizz Air's three bases and a brief browse of the online British newspapers reveals the anguish of the country's travelers as flights are canceled at the last minute, often leaving families stranded abroad. These cancellations are as prevalent with legacy airlines as they are with low-cost airlines. German national carrier Lufthansa alone has already announced 900 flight cancelations for July.
In addition to the cancelations, there are the delays, due mainly to either congestion at the airport, which piles extra pressure on flight staff who have already worked long hours, or to losing the landing slot at the destination airport.
"A small delay created this morning," recounts Carey, "gets longer as the day goes by. Unfortunately there are only 24 hours in the day and the crew's hours are completed at a certain stage. From this the last minute cancellations are caused. We very much want to provide customers with the best experience and I am absolutely aware that we are not doing so all of the time. This is what I am trying to correct at the moment. We will not succeed in completely avoiding this and I apologize to the customers that this is happening to. This is not a solution but at least we make sure to compensate them for all the expenses caused to them."
Wouldn't it have been better to lay on buses to take the rerouted passengers to London and to Venice?
"That is also something we have to correct. When a plane is forced to land so far from its destination, our plan is to hire buses to bring them to the destination. But the problem is that sometimes we don't succeed in finding buses and we have asked passengers to find their own transport. It's not what we want to do and it is not the right response that we need to give the customer. But we are working on solving this."
How can you solve something like this?
"We are going to take protective measures and proactively cancel some of our flights. We canceled the flight from Doncaster and we used some of the crew to strengthen other flights. It's a bit like putting shock absorbers on your car. We are putting more reserves of time and manpower into our flight schedule, in order to absorb the congestion at the airports, so that there won't be flight cancelations at the last minute."
This hits your revenue. Not exactly the model of a low-cost carrier.
It's right that it cuts our revenue somewhat, but it costs us less than last minute cancelations and this provides a better flight experience, and saves damage to our reputation."
Especially as your customers are people who worked hard for their family vacation and the damage done to them is significant.
"Precisely. It really is a shame. Finally we have reached a point that people can again travel and everyone feels they want to get abroad. And already now when the industry hasn't even returned to 100% operations, the system cannot deal with all this and there are already problems."
The delays are exhausting not only for passengers
The airports are already swamped, so what will happen in peak season in the summer? Airports like Schiphol in the Netherlands and Gatwick in the UK have already announced that they will reduce the number of passengers passing through in the summer and this has led to flight cancelations. In addition, the airlines themselves are also canceling flights even though some of the tickets for them have already been sold. Canceling a flight is not subject to penalties from the airports but if the level of cancelations passes a certain threshold then the airline might lose its regular slot and this could hit its schedule, especially for in-demand destinations and times.
Meanwhile, the pressure to stick to tight schedules is not only exhausting passengers but also the flight crews, and this caused Wizz Air founder and CEO Jozsef Varadi to score an own goal. Talking to the company's pilots, he spoke about sick leave because of exhaustion that the pilots were taking, and among other things, he said, "All of us are tired, but you the pilots are sometimes required to go the extra mile." This statement, which was interpreted as if he wanted the pilots to fly despite being exhausted, was quoted extensively in the media and brought broad condemnation from pilots' organizations.
"The video was taken out of context," explains Carey, defending Varadi. "Safety is in first place for us and we do not encourage any crew members to come to work if they feel exhausted or ill. Exhaustion is a genuine thing. Perhaps he did not put it right and I'm sure that our rivals enjoyed seeing it all over the news."
"The war in Ukraine has very much impacted us"
Varadi has been the spirit behind Wizz Air, since it was founded in 2003, after he managed Malev, Hungary's national carrier. It is constructed around his personality: daring, built on aggressive growth and ambition and not scared to take risks. It is today the largest airline in Hungary and one of the largest in Europe. Since 2015, the company has been traded on the London Stock exchange. Although some analysts described it as one of the biggest winners during the Covid pandemic, today investors are le4ss enthusiastic, and the Wizz Air's share price has lost 60% over the past year.
Although the year ending March 31, 2022 saw the airline's revenue more than double to €1.7 billion from €800 million the previous year, its net loss also rose to €642.5 million in the year ending March 2022, from €576 million, the previous year.
Wizz Air presents a contradictory picture aggressive growth in operations and revenue and an ambitious plan but losses and a plunge in the share price
"You must separate the short term from the long term. In the short term we have just come out of the Covid pandemic and as a company, part of the activities in Eastern Europe have been very much impacted by the war in Ukraine. In the long term, the good news is that the customers have returned."
In the short term, what has happened to your share price?
"The sharp fall in the share was because of the war in Ukraine and that for the most part is behind us now. The recent fall of the share, a week ago, was related to our results. There are mixed views about what we need to do. There are investors and analysts that think we have to cut growth in order to narrow losses. Others think the opposite. Our view, and my views is that the fall in revenue has happened across the industry, both because of the war and because of the sharp rise in fuel prices, and everyone had had their revenue hit.
"The past has shown that low-cost companies, in a systematic way, are those that get through crises in the best shape. When customers are faced with across-the-board price rises, the tendency to look for cheaper fares is strengthened and we are someone who knows how to offer them. We need to continue to grow because we the low-cost will be those who survive in the industry."
Uncertainty about the winter
You have given no financial forecast for 2022/23. Investors don't like that
"No European airline has yet provided a forecast for this year. We have said that there would still be losses in the first quarter (April to June) and that in the second quarter, which is summer, peak demand, we will be profitable. The reason we preferred not to predict the continuation of the year is that winter is a period of uncertainty for us. We don't know what will be with fuel prices and there is the danger of a recession (which of course might hit demand for flights). So it is true that we already have bookings for the winter but still at a low level. So instead of creating incorrect expectations, we prefer to be cautious."
If revenues are larger, why are the losses also bigger?
"Because what we have mainly been doing over the past quarter is getting ready for the summer. We are spending money on enlarging crews, our credibility, and on upgrading aircraft. In the short term, this strengthens the losses."
"Customers choose mainly by price
Low-cost carriers allows affordable flights but alongside this are allegations of over-booking, which further congests airports and create disruptions and harms the passengers themselves. Lufthansa CEO Carsten Spohr claims that low-cost airlines are destroying the airline industry because fares of €10 do real damage, to passengers as well.
"We are not here to serve the interests of the industry, we are here to run a business and to compete efficiently, to earn money and serve passengers," Carey responds. "Our vision is to provide affordable tourism to all types of customers. Find me a customer who feels hurt by flying for €10 instead of €500 on a scheduled flight. There are some airlines where there are cushy jobs and we disrupted what was a gentleman's club. But I do think there is still a role for the traditional leaders. There will be destinations that are too small (in numbers of passengers) and we cannot provide them with service, and there will always be customers that want to pay business fares, and that's fine."
You have changed the lives of passengers beyond saving money. The new model that low-cost created is that the passenger gives up on the flight experience and says I'll just get through it and that the experience will begin at the destination.
"I don't completely agree with that. I flew Lufthansa recently because I has to get from Budapest to Frankfurt and we don't have that route. The cost of the ticket was €300-400. At that price, I didn't get a reserved place, ad couldn't take baggage for free. All I received on the flight was a bit of water and chocolate. I don't know why Lufthansa gives chocolate. Perhaps they want the world to get fat.
"Compare this with Wizz Air. The fare for a similar flight in Europe is a maximum of €50 and there are days that it could go down to €10-20. We also don't have marked seats and free baggage nor do we have water and chocolate. But for a difference of €250, I can buy a lot of water and a lot of chocolate. And to be honest, I'm prepared to pit Wizz Air crew against any Lufthansa crew in competition and I would bet that the customers, if they would know that one of the crews is a scheduled airline and the second is ours, would prefer our crew.
"Travel on every airline in the world, at least regarding short and medium haul flights, is like traveling by bus. So there are 'buses' with TV screens for every seat, but today passengers are bringing their iPad or other device and they need this less."
"That is also the same on regular flights. We and Lufthansa each have aircraft of slightly different models but the same size, and both of us have 186 seats on the plane, so there is the same amount of room for the legs. I have been in the industry for many years and it is very clear to me that customers choose a flight mainly due to the price."
More than half the revenue from add-ons
The question is what the price really is. The customer chooses the cheapest flight and then adds money for a particular seat, and a suitcase and a drink and sometimes discovers, as happens for some of your passengers, that if they check-in at the airport, they also pay for that.
"It's right that we take money for that. But I would prefer zero revenue from check-in at the airport. It is more as an incentive for passengers to fill in their details ahead of time and that they will already be in the system. When we see that the number (of check ins) are big at the airport, for us it is a sign that we must conduct an educational campaign for customers to do check-in beforehand."
What percentage of your revenue comes from add-ons?
"A little bit more than half. 56%. The main revenue is from additional payments for baggage, choosing seats, priority boarding of the flight and the sale of food and duty free on the plane."
How are you managing with the staffing shortage that is afflicting the entire airline industry? Is it not tough to find crew because of the lower salaries than the legacy airlines?
"You would be surprised. Low-cost carriers actually lead in hiring employees, mainly us and Ryanair. One of the reasons for the success is that we began early. It's impossible to hire somebody overnight and put them on a plane. We have been hiring non-stop now for nine months. In addition, we have restored all salaries to pre-Covid levels and that also helps, and it also helps that there are so many flights so that they earn very well.
"Since September we have had a very clear plan on how many employees we need in order to operate over the summer. We have increased from 3,800 employees last summer to 6,500 this summer. That's compared with a little over 4,000 employees that we had before Covid."
Carey joined Wizz Air after 20 years in the airline industry, from his previous position as chief commercial and customer officer of easyJet. The position of president was created due to the airlines rapid growth in its aircraft fleet and routes so that he could ease the executive responsibility on the shoulders of Varadi.
Ambitious expansion plans
Varadi has agreed with Wizz Air that he will receive a €100 million bonus if he can double the airline's market cap to €10 billion over the next five years. The plan was approved despite the reluctance of some institutional investors who thought it too ambitious.
The plan requires the airline to be very aggressive and ambitious. You can't double your valuation in a short time by being cautious. Isn't it dangerous?
"It is dangerous but we see a lot of opportunities out there. We have 120 planes in Eastern Europe and it doesn't seem an exaggeration to double the number by the end of the decade and there is a lot of room to develop in Western Europe. And Abu Dhabi, perhaps Israel is a market and there are many opportunities that we see in the east that have not been exposed to the low-cost world. It will give a lot more people the opportunity to travel. We see this as a plan that can be realized and we are working on implementing this."
Last January, Wizz Air was named Europe's greenest airline by Sustainalytics
"As an industry, we have lost the battle for our image regarding air pollution. But I think that Wizz Air is in a good place on this issue. We have continued to invest in new technology to save fuel and n the best planes. The emissions we create are one third less than the rest of our industry in Europe. We are 20% more efficient in fuel consumption both through technology and the fact that we fly full planes, without spacious business class and we fly non-stop from point to point."
"We haven't decided whether to return to Eilat"
Carey was in Israel for meetings with the Israel Airports Authority and the Ministers of Tourism and Transport. He has been holding such meetings over the past year, since he took up his new post, in markets marked out for potential high growth. This is his first visit to Israel, not counting an unfortunate connection flight he was forced to take at Ben Gurion airport of all places.
"Israel is one of the only places that is served daily by each of our three companies (Wizz Air UK, Europe and Abu Dhabi). It is one of the most important markets for us and we are number two for flights between Israel and Europe, after El Al. Before the pandemic we had 1.2-1.3 million passengers a year. There is much for us to develop in Israel."
Before Covid, Wizz Air operated between Eilat and seven destinations. "Meanwhile we have not announced our intentions to return to this. In actual fact we haven't decided whether to do it or not. Israel was to my regret during Covid one of the markets with the most restrictions and demand for Eilat simply disappeared. We are hesitating because we have already seen in the past that there are markets that work for us and those that don't."
In the past Wizz Air asked to open a hub in Israel and was refused. Such a hub would have allowed it to strengthen competition and operate flights from Israel to many destinations including a profitable route to Eilat. Asked if this is again being considered, he says, "The open skies agreement allow us to open a hub for activities in Israel and this is possible and an interesting idea. We have already been here for a decade and the market has responded nicely to Israel."
The airline industry has many mergers and Wizz Air isn't there. Is that something you are considering, perhaps even with an Israeli company?
"At the moment it is not in our plans but we don't rule out that it won't happen one day that we will buy or merge with a company. If this happens it will be with a company that has similar DNA to us and will bring something that we cannot bring alone."
Published by Globes, Israel business news - en.globes.co.il - on June 27, 2022.
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