Budget Airlines Heat Up Competition

Hungarian budget airlines Wizz Air (WA) announced last week that it signed a €25 million loan contract with U.S. based Indigo Partners Llc. WA already received a €3 million loan at the end of summer, and it reviewed its business plan to survive tough competition.

The number of passengers at Ferihegy airport reached 5.5 million in the January-October period, and budget airlines accounted for 686,000 out of that. WA is the largest budget airline serving Ferihegy, other competitors include London-based EasyJet, Slovakian SkyEurope and Europe’s market leader Ryanair. The latter sold a million air tickets for 99 pennies each, while WA offered tickets for one euro.

EasyJet has recently called WA to explain why it decided to cancel more than 200 flights to London as of November. “It is not correct to offer low prices by canceling flights that are not fully booked,” said EasyJet marketing director Jannisz Kopodisztriasz, adding that EasyJet sometimes flies only five or ten passengers, resulting in €6,000–€8,000 in losses. The airline posted HUF 62.2 million pre-tax profit last year.

The number of European budget airlines has grown to 60, but some of the smaller ones could go bankrupt in the winter season. According to Kopodisztriasz, some mergers are also expected, as companies with a fleet of less then 30–50 planes cannot survive, as the margin is as low as 5%–6%. Only the two largest budget airlines can afford to operate at a loss; one of them is Ryanair, which has €1.2 billion in cash and EasyJet, which holds €800 million in reserves. WA owns only six planes and plans to add another five or six next year, as against earlier promises of three more this year.