Wizz Air faces profit forecast cut amidst industry challenges

European budget airline Wizz Air has announced a downward revision of its annual profit forecast, falling short of analyst expectations and attributing the adjustment to challenging macroeconomic conditions.

The Hungarian carrier’s net income guidance for the financial year now stands between €350 million and €400 million, down from its previous estimate of €350 million to €450 million. The news sent shockwaves through the market, resulting in a 6.3% drop in Wizz Air’s share price following the announcement on Thursday.

Jared Ailstock, Managing Partner of AIP Capital, a global aviation investment and asset management company, commented on the multitude of challenges that the aviation industry is poised to confront as it moves into 2024.

These challenges include escalating fuel and labor costs and emerging supply bottlenecks.

One significant setback Wizz Air has had to contend with this year is a capacity reduction resulting from the recall of RTX engines. In July, RTX disclosed the presence of microscopic contaminants in a powdered metal component used in high-pressure turbine discs within the GTF engine’s core.

Although the number of grounded European short-haul fleet aircraft is relatively small, investors have expressed concerns about its potential impact on competition and pricing in the summer of 2024.

Wizz Air is not the sole airline grappling with the fallout of this ongoing crisis. Earlier this year, the industry saw the removal of 1,200 Pratt & Whitney engines from Airbus A32neo jets for inspection, exacerbating the already limited supply of aircraft.

Since June, airlines have been grappling with a more than 25% surge in jet fuel prices with no apparent signs of abating. Simultaneously, the renegotiation of labor contracts has triggered a substantial increase in operating costs.

Ailstock identifies these challenges as significant hurdles for the aviation sector in its quest to regain pre-pandemic levels of profitability, despite reaching capacity levels surpassing those of 2019 in the previous month.