Wizz Air Holdings PLC's (AIM:WIZZ) ambitious profit goals for the financial year are under scrutiny, with Deutsche Bank raising concerns over the airline's escalating costs.
Analyst Jaime Rowbotham suggests that the low-cost carrier may struggle to meet its earnings guidance, despite anticipated revenue gains.
To hit the lower end of its profit forecast of €350 million for the full year ending March 2025 (FY25), Wizz Air needs to secure approximately €40 million in net profit during the second half of the year.
This is a substantial leap from the €35 million net loss recorded in the same period last year. However, Deutsche Bank estimates a net loss of €48 million for Wizz Air in the upcoming half, casting doubt on the airline's ability to achieve its target.
On the revenue front, Wizz Air expects an upswing in its revenue per available seat kilometre (RASK)—a key industry metric that measures how much revenue is generated for each kilometre flown per seat available.
The airline anticipates mid-single-digit growth in RASK for the full year, buoyed by an expected 12% year-on-year increase in the second half. This optimism is partly due to easier comparisons with the previous year's performance.
Yet, rising operational costs could eclipse these revenue improvements. Non-fuel costs—excluding miscellaneous expenses and depreciation—rose by 16% year-on-year in the first quarter of FY25. Deutsche Bank forecasts a similar increase of 17% in the second quarter.
Even with an expected slowdown to a 6% increase in the second half, attributed to resolving staffing inefficiencies and better management of airport charges, the bank predicts non-fuel unit costs could surge by 18% for the full year. This figure significantly overshoots Wizz Air's guidance of a high-single-digit rise.
Consequently, Deutsche Bank has trimmed its profit after tax forecast for Wizz Air by 6%, from €280 million to €263 million. This revision places its estimate 14% below the Bloomberg consensus of €307 million.
Reflecting these concerns, the bank has lowered its target price for Wizz Air shares from 1,750p to 1,650p, maintaining a 'Hold' recommendation. The airline's shares last closed at 1,318p.
In afternoon trading Wizz Air's shares were up 1.1% at 1,333p.