• Thu. Aug 4th, 2022

Resetting the airline industry after the pandemic

ByKimberly A. Brochu

Jul 7, 2022

 






Author: Jourik Hooghe, Executive Vice President and Group Chief Financial Officer, Wizz Air Group


July 7, 2022

Two years – that’s the time since COVID-19 hit and air travel was hit with the biggest existential crisis since the Wright brothers took their first flight at Kittyhawk. There is no doubt that the impact on our industry has been and will continue to be profound. But in retrospect, the shutdown of global passenger air travel created absolute clarity in terms of analyzing the situation, the speed with which tactical decision-making needed to be made, and a baseline zero-revenue scenario to plan for in the short term. and medium term.

The strength of balance sheets soon became the most important objective by which stakeholders could judge an airline – cash consumption was key and reducing it was the most important decision to make.

Of course, this didn’t happen overnight and the partnership approach to creating these short-term solutions was paramount. Within days, and in some cases even hours, decisions were made. All players in the air transport value chain have had to make giant strides, in unison. It was our global financial crisis and as an industry we rose to the challenge.

cash is king
From Wizz Air’s perspective, the strength of our balance sheet was vitally important to weather the post-COVID-19 period. But more importantly, to create a real competitive advantage as we navigate through this crisis, to significantly improve our relative position – accessing destinations that previously would not be open to us, leveraging our ultra-low-cost business model, enabled by our Airbus fleet order and delivery programs.

This fleet ordering, in conjunction with our business model, not only offers the lowest cost (and as such enables the lowest rates for customers), but it also offers the lowest emission intensity. lowest in the industry because we use the most modern fleet, which uses ultra-efficient GTF engines designed to reduce fuel consumption and carbon emissions, with the most optimized seating density in an aircraft – efficient but very comfortable for passengers.

At the start of the pandemic, we made the decision to accelerate our growth as the industry was being reset and we put forward our WIZZ500 strategy, to become a 500 aircraft airline by the end of the decade. The reality is that COVID-19 has forced the acceleration of major fleet decisions within the airline industry, resulting in the retirement of older, less fuel-efficient aircraft.

Important lessons have been learned and there is no doubt that all parts of the airline supply chain will seek to develop new ways of working that build resilience into contractual agreements. However, the challenge for the industry is: should we return to the previous status quo or seize the opportunity to create a better and more efficient ecosystem, by rethinking and realigning ourselves with the needs of our customers, without depending too much government support? legacy business models?

Restarting the role of technology in aviation
Customers have enjoyed decades of air travel at ever-lower costs, but there are emerging geographies where new customers can only access air travel for the first time through ultra-low-cost carriers. How do we reconcile the need to connect more people, connect more communities and enable them to improve their economic prospects, with the need to reduce our carbon footprint?

Technology in combination with the business model is part of the answer. Today, the industry would reduce emissions by 34% overnight if it adopted Wizz Air’s technology and business model. Through the complete conversion of its fleet to the best technology currently available, Wizz Air aims to further reduce its carbon emissions intensity by 25% by the end of the decade. In the next decade, better hydrocarbon, electric and hydrogen engines are all possibilities. But investment in new technologies must be encouraged, not limited, by policies. It is clear to Wizz Air that fuel levies/taxes must focus on emissions, rather than other measures, as only then can governments accelerate the pace of technological change.

In the past two years, which have been loss-making for the airline, Wizz Air has paid around 20% of its revenue in taxes unrelated to profits or the people it employs. Of these taxes, over 70% were based on the number of people we transported rather than the efficiency with which we transported them and, to our knowledge, less than a few % of these tax revenues were invested in enabling infrastructure to a zero-carbon future.

However, the current logic that allows tax breaks for long-haul operators and heavily polluting connecting traffic, and therefore favors the current status quo of inefficient carriers and airports, needs to be challenged. designed to encourage fuel-efficient technologies and business models.

Coming through the clouds
There are also inefficiencies that need to be addressed, such as slot policies that favor incumbents and encourage half-empty flights, which simply cannot stand up to rational economic, commercial or sustainability analysis unless the main objective is to stifle competition. We encourage regulators to examine these structures closely, both from an economic and a sustainability perspective.

We also see an important opportunity to fundamentally rethink the way airspace is controlled in Europe. Currently, ATC strikes in key overflight areas like Italy or Poland are not only causing major disruption to our customers, but are increasing ticket prices and emissions as journeys of theft are adjusted and lengthened by industrial action. As we emerge from the COVID-19 crisis, when so much has been accomplished in realigning fleets and emissions characteristics, there is an opportunity to rethink how all players in the airline value chain airlines, including regulators and governments, can meet the needs of our customers. , while tackling the fundamental sustainability issues facing the industry.