Hungarian airline applies multinational and local mindsets
With its first flight in 2004, Wizz Air celebrated 18 years of activity in the Hungarian aviation market this year. That’s a long time, even for a small business, but in an industry rocked by a pandemic, inflation, skyrocketing fuel prices, deepening economic recession, fierce competition and sudden tax changes, Wizz Air has proven to be resilient. The Budapest Business Journal discussed the challenges with the chairman of the low-cost airline, Robert Carey.
BBJ: What makes Wizz Air competitive as a multinational?
Robert Carey: There are several factors here. First, while Wizz Air is based in Hungary, if you look closely, employees come from all over Eastern and Western Europe and the world. The diversity of opinions is very important to make a strong multinational, because we have to meet the demands of many customers in many markets, so we have the perspective there. Second, we really try to ensure that we operate like a local airline in a local market. In Romania, the local management team and crew are, for the most part, Romanian. In Italy we have a lot of Italians. Lufthansa is a German company, no matter where you are traveling in the world. Wizz Air is a multinational company operating wherever it serves, serving local demand. And that’s important because ultimately the customers we serve in every market come from that market. Third, if you look at the management team that József [Váradi, the company’s CEO] brought, if you look at the investment team, they come from all over the world, and it’s really important to bring the diversity of opinions and thoughts, different approaches. It challenges the way we operate and forces us to operate at high levels. We bring best practices and challenge ourselves with what works well elsewhere in the world that we can bring.
BBJ: Public airlines are in trouble, many have gone bankrupt. What are these companies doing wrong?
RC: I think it boils down to one thing: customers buy a commodity. When was the last time you chose a flight based on the food served on board? Never. No customer makes this decision. In short and medium-haul trips, they look at the price and the timetable. Often, traditional carriers are very busy with having a very high level of service on board; they say: “I need to serve strategic destinations”, but that may not make sense; “I need to have business class on board because there is a segment of the population that we need to serve”, etc. So they don’t think from a shareholder mindset, ie, what do customers actually want and, more importantly, what will customers actually pay? I think what Wizz brings is discipline and focus to make sure everything is running as efficiently as possible. So we have the most efficient aircraft, we operate high utilization of those aircraft during the day, and we operate high utilization of the productivity of our personnel. All of this keeps our costs low; ultimately our customers want it, and many incumbents have forgotten about it.
BBJ: We are currently in a very difficult economic situation which is probably not over. How does Wizz Air deal with this toxic mix of challenges: inflation, rising interest rates and everything in between?
RC: It’s a tough economic environment, that’s true. We have higher fuel costs, inflation. The one thing that is positive within the industry is that we have already seen the impact of high fuel prices and the recession. Maybe not of this level and magnitude, but unlike COVID, which was very new and unfamiliar to us, we’ve seen it before. What you see happening in this environment is that customers are looking for the cheapest alternative for their trip. They don’t want to pay a premium for a high level of service; they want to get the most economical solution. So that helps low-cost carriers. Two: as costs increase for everyone, it puts pressure on the costliest players. Because, again, if I get less margin and no one pays a premium for premium service, those with higher costs suffer more. They then withdraw high capacity from the market, causing the equilibrium to return. In that equation, whenever we’ve seen it — 2001, 2008, 2013, whenever we’ve had a combination of some kind of economic downturn or high fuel prices — the low-cost carriers are the ones that have won.
BBJ: Should customers expect higher prices due to the situation?
RC: I think, ultimately, yes. Everything you buy these days is more expensive, right? Airlines are not immune. The costs of air travel over the past 20 to 30 years have gone down, not up, so we’re probably back to where they should be. That said, I think we try to keep those costs as low as possible. We have invested in the latest technology. These aircraft operate 20% cheaper than commonly used technology because they are more fuel efficient and carry more passengers for the same fuel price. This allows that even if the costs are higher, we can ensure that we can give the lowest price to our customers.
Robert Carey took over as Chairman of Wizz Air in June 2021. He holds a Bachelor of Science in Industrial Engineering from Arizona State University as well as a Masters of Business Administration from Harvard Business School. He began his career in aviation 20 years ago with America West Airlines, then Delta Air Lines. Carey then spent more than a decade at McKinsey and Company, where he was a partner in airline practice. He joined easyJet in 2017, where he was Chief Commercial and Customer Officer.
This article first appeared in the print issue of the Budapest Business Journal on July 15, 2022.