Wizz Air (LSE:WIZZ) shares gained as much as 7% in early morning trading on Thursday. The stock has suffered considerably since Russia’s invasion of Ukraine. At one point, Wizz was trading at a near 50% discount versus its pre-invasion price.
What’s behind today’s jump?
On Thursday, Wizz Air said it would ramp up capacity beyond pre-pandemic levels for its summer schedule amid a positive forecast. The airline said that available seat kilometres (ASKs) for the three months to June would be 30% ahead of 2019. ASKs would be 40% higher than the 2019 July-September quarter.
“We have been encouraged by demand trends in recent weeks and given the shorter booking horizon expect the bookings for this summer to build significantly after Easter,” a trading update read.
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Wizz said that that it was continuing to monitor the situation in Ukraine, Moldova and Russia. It noted that while flights to/from these locations remain suspended, it had successfully reallocated the affected capacity to elsewhere in its network.
The operating result for the final quarter of the 2022 fiscal year was expected to be ahead of the guidance provided at the Q3 update.
Is Wizz a cheap buy for my portfolio?
Wizz Air may be trading at a discount, but there’s a reason for that. The Budapest-headquartered airline has been more afflicted by the Ukraine conflict than its peers, primarily due to its exposure to Eastern European markets. Wizz Air was the only EU carrier to have a base in Ukraine and operated 45 routes out of the country. The operator stopped flights to and from Russia and Ukraine following the invasion, causing it to slash its business growth targets.
But that wasn’t the only way the war impacted the airline. While most airlines had hedging strategies to protect them against fuel price fluctuations, Wizz Air had stopped hedging. The airline was more exposed to the rise in oil and fuel prices. In fact, Wizz cut 7% of its flights in March as a result of its lack of fuel hedging. By comparison, Ryanair had hedged 80% of its anticipated fuel requirements at $65 per barrel of oil until March 2023, meaning it can continue operations with lower fuel costs.
During the pandemic the low-cost carrier invested heavily in new planes and routes, but this could go two ways. Further disruption could force it to absorb higher fixed costs than other leaner airlines. Equally, Wizz may be better positioned to take advantage of pent-up demand for travel.
I do already hold shares in Wizz. I only have a limited number but I believe the share price will improve from here. Yes, there are near-term issues. But I’m holding this one for the long run, even if I’m not buying more for now.
