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Flybe Collapses and WizzAir Posts Strong Profits - A Tale of Two Airlines

Geoff Riley

28th January 2023

For the second time in recent years, FlyBe has gone into administration and ceased trading. In contrast, the low-cost carrier Wizz Air seems to be thriving and has posted over Euro 30 million in operating profits.

The airline FlyBe has ceased trading and cancelled all flights. More details here from the BBC website. Based at Birmingham Airport, FlyBe operated scheduled services from Belfast City, Birmingham and Heathrow to airports across the UK and to Amsterdam and Geneva. But weaker than forecast passenger loads and rising costs have both contributed to a decline in cash flow and the ultimate demise of the business.

Wizz Air

I follow Wizz Air quite closely because one of my former Economics students is now a senior commercial manager for the business., Wizz Air is a Hungarian low-cost airline that was founded in 2003. The airline is headquartered in Budapest, Hungary and operates flights to destinations across Europe, the Middle East, and North Africa. Wizz Air is known for its low-cost fares and efficient operations, which allows it to offer competitive prices to its customers.

WizzAir now flies to 54 countries. Revenue in the most recent trading period more than doubled compared with the previous year, from €408m to €912m, as the airline carried 12.4m passengers, up 60 per cent.

Airline profitability is dependent on many factors. The industry as a whole is exposed to external shocks such as turbulence in world aviation fuel prices and the impact of health issues such as the pandemic.

There are several factors that can affect the profitability of airlines, including:

  1. Fuel prices: Fuel is one of the largest operating costs for airlines, and fluctuations in fuel prices can have a significant impact on profitability.
  2. Competition / contestability: The level of competition in the airline industry can affect profitability by impacting ticket prices and the ability to fill seats. Airlines that face high levels of competition may have to lower their prices to stay competitive, which can reduce profitability.
  3. Operating costs: Airlines also have to incur other costs like maintenance, labour, and airline insurance which can affect profitability.
  4. Economic conditions: Macroeconomic conditions, such as recession or inflation, and changes in the real incomes of travellers can affect consumer demand for air travel, which can in turn affect profitability.
  5. Government regulations: Government regulations, such as taxes and fees, can also affect profitability by increasing operating costs for airlines.
  6. Airline's route network: The route network of an airline also plays an important role in determining the profitability. Airlines with a diverse route network are generally more profitable as they can tap into different market segments.
  7. Brand reputation: Brand reputation of an airline also plays an important role in determining the profitability. Airlines with a good reputation can charge a premium price for their services and can also attract more customers.
  8. Airline's Fleet: Airlines with newer and more fuel-efficient fleet are able to reduce fuel costs and can also attract more customers.
  9. Airline's Ancillary Revenue: Ancillary revenue includes things like baggage fees, seat selection, and onboard sales. These revenue streams can be a significant source of profit for airlines, as they allow them to generate additional income beyond ticket sales.

By understanding these factors, airlines can make strategic decisions to improve profitability, such as reducing costs, expanding their route network, or focusing on customer service and brand reputation.

What is passenger load factor and why does this matter for an airline?

Passenger load factor measures the utilisation of an airline's available passenger capacity. It is calculated by dividing the number of passengers carried by the number of seats available on a flight or over a specific period of time. It is typically expressed as a percentage.

A high passenger load factor of say 80-905 or more indicates that an airline is effectively utilising its capacity and is able to fill a high percentage of its seats, which can lead to increased revenue and profitability. It also helps to bring down the average fixed cost per passenger.

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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