Low-cost carrier Wizz Air to furlough 20 per cent of its employees
Fitch has downgraded Wizz Air Holdings' long-term IDR and senior unsecured rating to 'BBB-' from 'BBB'
As a cost–cutting and liquidity measure to mitigate the financial impact of COVID-19, Wizz Air, the largest low-cost airline in central and eastern Europe, which is currently operating only three per cent of its pre-coronavirus crisis capacity, is to make 1,000 positions redundant, representing a 19 per cent cut in its workforce.
Additional employee furlough measures have also been and will be taken in the short term as necessitated by the travel restrictions due the COVID-19 pandemic, the budget airline has said in a statement. It has also announced that, for the whole fiscal year of 2021, which started from April 1, the remuneration of all senior officers will be reduced by 22 per cent, while salaries of pilots, cabin crew and office staff will be reduced on average by 14 per cent.
The company insists that it has “a very strong balance sheet and excellent liquidity”, with €1.5bn of cash reserves at the end of March 2020.
In the short term, Wizz is planning to adjust its capacity to market conditions and is reviewing aircraft allocation on a market-by-market basis as opportunities arise. As markets normalise, Wizz Air expects to maintain its plans to grow capacity by an average of 15 per cent annually and has even confirmed that the launch of operations of its Wizz Air Abu Dhabi, UAE venture, is progressing in line with its initial timeline.
In the meantime, global ratings agency Fitch has downgraded Wizz Air Holdings plc’s long-term issuer default rating (IDR) and senior unsecured rating to ‘BBB-‘ from ‘BBB’. The rating outlook for the long-term IDR is negative. The agency says the downgrade is a reflection of the macroeconomic and global aviation industry expectations that are currently weakening Wizz Air’s business and financial profile. With a deep global recession in 2020, Fitch forecasts that air travel demand will be hit well beyond the on-going restrictions related to the Coronavirus pandemic, whilst assuming Wizz Air’s revenues will recover to its fiscal year to March 2020 (FY20) level only by and during FY23.
The negative outlook reflects the uncertainty around air travel and demand recovery. It estimates the airline’s strong liquidity will drain during FY21, but will nevertheless remain sufficient assuming substantial measures to preserve cash.
In a deep global recession scenario, Fitch assumes that Wizz’s seat capacity will fall by 100 per cent from April to end-June, before a slow recovery during 2020 and beyond. As a result, an annual decline in available seat kilometres (ASKs) of 56 per cent in FY21, followed by a four per cent growth in FY22 (compared to FY20) as the company plans to continue growing its fleet and keeps high level of capex in the next few years despite the Coronavirus impact.
Nevertheless, Fitch believes Wizz is well placed to benefit from the post-Coronavirus sector recovery compared with most European peers. This is due to the company’s solid financial profile at the outset of the crisis, its customer base, and a low-cost base providing opportunities to grow, particularly as some financially weaker rival airlines are likely to cease operations as a result of the crisis.
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