You are more likely to contract the coronavirus at your local supermarket than on an aircraft, apparently (Robert Lea writes). It won’t surprise you to learn that this is the view of an airline boss.
In fact, it was part of the pitch of Jozsef Varadi, 54, the co-founder of Wizz Air and its chief executive since the company’s inception 17 years ago, at its annual results a month ago, part of an upbeat assessment so industry-bucking that few took too much notice of its strong fundamentals. The combination of operating profits of €338 million on €2.7 billion of revenues from 40 million passengers puts Wizz Air’s operating margins on a par with the industry’s best-in-class (Ryanair, nearly four times as large) and way ahead of the other comparable short-haul European carrier (Easyjet, more than twice as big).
Mr Varadi’s contentious grocery analogy works on the basis that airports are screening for the virus, travellers are more careful and are masking up and claims about the purity of aircraft air. If all that sounds debatable, then you have to understand that airline bosses are clutching at anything to get people back in the air in a torrid downturn that will be over in a year or will last five years, depending on which happy pills aviation analysts are taking.
Yet Mr Varadi’s message is upbeat: he reckons that 80 per cent of his fleet will be up in the air later in the year and that the aircraft will be flying more than half-full. That seemed spectacularly optimistic only a couple of weeks ago, but is based on trends that he argues are in his favour.
Wizz Air, with its 121 Airbus jets, is predominantly based in eastern Europe, although its profile in Britain is lifted by its presence at Luton airport. It claims to be the largest operator in central and Eastern Europe, with nearly 40 per cent of the market, ahead of Ryanair’s 32 per cent. It cedes leadership in Poland, the region’s largest market, to Ryanair, which operates its own separate subsidiary in the country, but is the largest operator in some growing markets — those of Hungary, Romania, Bulgaria, Ukraine and across the Balkans.
Call it luck, timing or excellent husbandry, Wizz went into the pandemic shutdown with €1.5 billion of cash and it cut staff early. A thousand people, or a fifth of the workforce being let go, were let go immediately. This means that in a crowded and competitive market to get people back in the air, Wizz has some financial firepower to offer lower fares than the next carrier.
Its demographic is also aligned to a cautious return to the air. About 65 per cent of its clientele are expats of some sort, so whether it’s seeing friends and family after the lockdowns or starting the commute again, Wizz passengers are as likely candidates as any to take to the air.
The other demographic shows that Wizz is a young person’s airline, with an average passenger age of 36. Mr Varadi believes that if anyone will be flying this summer, it will be the younger generation rather than shielding or cautious older passengers.
Analysts are all a bit-finger-in-the-wind on where Wizz’s financials will turn out this year, but they do expect the company to make an operating profit, albeit one down by more than 60 per cent. However, by 2023 those operating profits could bounce by 250 per cent.
If that is the case — and caveats, of course, abound around a vicious second or third wave of Covid-19 – then the London-quoted stock, ahead by 62p, or 1.8 per cent, at £34.70 last night, not far short of where it was a year ago, could have plenty of upside.
Advice Buy
Why It has shown itself to be a rival to the industry’s best-in-class and when the market returns Wizz will benefit
Hochschild Mining
With gold prices near nine-year highs because of coronavirus-induced uncertainty, the pandemic has proved a fillip to miners of the yellow metal — unless, of course, Covid-19 prevents them actually getting it out of the ground (Emily Gosden writes).
Hochschild Mining has been among the most affected. It produces gold and silver at two mines in Peru and one in Argentina. All three have suffered production shutdowns.
The situation is particularly tough in Peru, which went into a strict lockdown in mid-March to prevent the spread of the virus and yet is still suffering from one of the highest infection rates in Latin America.
Hochschild’s two mines in the country — Inmaculada and Pallancata — were opened again in mid-May, but Hochschild said yesterday that it had been forced to halt operations at Inmaculada once more after “a number of workers” tested positive for the virus. Despite safety precautions, including testing of workers at the site, a few dozen of its 800-plus workforce have been infected. There is no guidance on when it expects to be able to resume operations, beyond “as soon as a safe and healthy workforce can return to site”.
Inmaculada is by far Hochschild’s newest, biggest and most profitable mine, accounting for the majority of its group revenues and profits, which came to $77 million last year. It had been due to account for almost three quarters of attributable gold output this year. The miner updates on its second-quarter production next week, which was already expected to be weak. The latest shutdown will eat into its third-quarter performance, too. Hochschild shares fell by 5½p, or 2.9 per cent, to 182½p yesterday.
It is retaining its staff while the operations are halted, meaning that it is burning through cash until operations can resume. Thankfully, it has a strong balance sheet. At the end of March it had $178 million of cash and net debt of only $36 million, so should be able to weather a shutdown for some time. However, it is impossible to rule out an extended shutdown or further Covid-19 stoppages in future. The situation in Peru may cast further doubt, too, on already-delayed timelines for the planned expansion of Pallancata.
Advice Avoid
Why Uncertainty clouds biggest operation
