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Get Four
|  | JANUARY 11, 2006
By Carol Matlack Wizz Air's Promising Flight PathAs low-cost airlines battle it out in Eastern Europe, this startup run by a former Hungarian flag carrier CEO could soar past the competitionJozsef Varádi didn't stay grounded for long after he was ousted as chief executive of Hungarian flag carrier Malév in 2003. Within months, he set up a discount airline, Wizz Air, that has become one of Europe's fastest-growing carriers. Based in Hungary and Poland, Wizz now serves 14 countries from Britain to Bulgaria and ferried 1.9 million passengers in 2005. That puts it neck and neck with SkyEurope, a Slovakia-based carrier founded in 2002 that until now has been Central and Eastern Europe's biggest low-cost airline. This year, Varádi predicts his fleet of pink-and-purple planes will carry 3 million passengers. Varádi, 40, a former Procter & Gamble (PG ) executive, says Wizz was in the right place at the right time -- and with the right stuff. Most of Europe's eastern rim is benefiting from robust economic growth and ever-increasing integration with wealthier Western European countries. Yet until recently, much of the region had minimal air service, and fares charged by local old-line carriers such as Malév were relatively high. CROWDED AIRSPACE. All that has changed over the past three years, as discounters have moved in. Besides homegrown carriers such as Wizz and SkyEurope, Europe's two biggest budget airlines, Ryanair of Ireland and easyJet of Britain have rapidly expanded into the region, with flights to such destinations as Balaton, Hungary, and Szczecin, Poland. Wizz now faces off against these low-cost heavyweights, and against SkyEurope, on a number of routes. The competition is tough -- so much so that some discounters such as Germany's Air Berlin have already pulled back from Central Europe. But Varádi is confident Wizz can hold its own through relentless cost control. "The only winners in Central and Eastern Europe will be the ones which can compete on costs," he says. Taking a page from Ryanair's handbook, Varádi saves money on airport landing fees by flying mainly into secondary airports such as Charleroi in southern Belgium and Beauvais, outside Paris. Wizz has fewer than 300 employees, an average of 1 worker for every 8,000 passengers carried each year, compared to 1 per 1,000 at many old-line carriers. Wizz also benefits from generally lower wages in Central Europe where most of its employees are based. COST CONTROL. Varádi squeezes maximum use out of Wizz's fleet of six Airbus A320s, flying them an average of 13 hours a day. That's better than the average 9 to 11 daily hours logged by Ryanair and easyJet, says Gert Zonnefeld, an airline analyst at London brokerage Panmure Gordon. At the same time, maintenance costs are low because the six planes are identical and relatively new -- none is more than three years old. Such cost discipline allows Wizz to keep fares low, though not rock-bottom. For example, Wizz's Web site lists a round-trip fare from London's Luton airport to Warsaw from Jan. 20 to 25 for $150, while a flight from London's Stansted airport to Warsaw on the same dates would cost $107 on SkyEurope. Analysts say Wizz appears to be positioning itself near the middle of the discount airline pack, with fares slightly higher than Ryanair's and SkyEurope's but lower than those of easyJet, which generally flies into more convenient airports. To get Wizz airborne, Varádi lined up $42 million in financing from unidentified private investors and from private-equity funds including U.S.-based Indigo Partners. The carrier launched flights in May, 2004, from its twin hubs in Budapest and Katowice, Poland. It now serves 26 cities, with additional routes in summer to vacation destinations. "A VICIOUS INDUSTRY." The privately held Wizz doesn't disclose revenues or earnings. But Varádi says his business plan is on track, and Wizz shows no signs of slowing. On Jan. 10, it announced the launch of service from London to Zagreb, Croatia. Despite its impressive takeoff, Wizz faces tough flying conditions. Most Central and Eastern Europeans can't afford air travel, which means all these airlines are competing over a very small market. Wizz and SkyEurope flew a combined 3.8 million passengers in 2005, compared to about 30 million apiece for Ryanair and easyJet. Some German low-cost carriers also are fighting for a piece of the action, too, and Polish flag carrier LOT has set up a low-cost affiliate, CentralWings. "It's a vicious industry, and undoubtedly some of them won't make it," says Zonnefeld of Panmure Gordon. GETTING EVEN. At least, Varádi says, he knows how not to run an airline, thanks to his two-year stint as CEO of Malév, where he was fired in a management shakeup by the Hungarian government. "With state ownership, you cannot have a viable airline," he says. "There is too much politics. You need a smaller, more-dedicated organization." Malév has about 3,000 employees, 10 times as many as Wizz. And if Wizz continues on its present trajectory, this year it will carry as many passengers as Malév. For Varádi, that's sweet revenge indeed.  Matlack is BusinessWeek's Paris bureau chief Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
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