May 2021. With the summer season just around the corner and the hope of a better recovery in traffic than a year earlier, the CEO of the Hungarian ultra low cost airline Wizz Air, Jzsef Vradi, thinks it is the right time to try the coup of the decade that would revolutionize the skies of Europe: knock on the British easyJet – the second low-cost company in the continent before Covid – and propose the acquisition to create a single, great rival with a whole fleet Airbus against Ryanair (which relies on Boeing). In 2019, without the pandemic, the Irish carrier carried 152 million passengers, nine more than those boarded together by easyJet (103 million) and Wizz Air (40).
Vradi’s plan provides for a due diligence immediately after the summer in order to conclude the negotiation by January 2022, to have the green light of the EU antitrust as soon as possible on some specific markets and then to start selling the tickets for the summer season (which in transport airplane leaves at the end of March and ends the last days of October). But that offer was blatantly rejected by easyJet’s Board of Directors a few days ago with some irritation not only for the value attributed to the British carrier, but also for the form, as reconstructed by the Corriere della Sera through seven different industrial sources spread across Europe. All ask for anonymity because they are not allowed to talk about it publicly or for fear of repercussions at work. And because there is a peculiarity: officially for this operation the name of Wizz Air was never mentioned.
The European market
Vradi has long wanted to expand to the west, the sources continue. Not only because it is a richer market than the eastern one, but also because there are more prestigious airports, where it is easier to intercept a high-spending clientele capable of allowing much higher profit margins while keeping operating costs low. But these airports – for example those of Paris, Geneva, Milan Linate, London Gatwick – are also quite clogged. The acquisition of easyJet (or the merger) would have allowed direct access to that slot portfolio without being on the waiting list which in some parts – such as Linate – is very long.
The moment, according to the Hungarian CEO, the right one: Wizz Air in an expansion phase, easyJet no, Wizz Air has a market capitalization of 5.67 billion euros these days, easyJet less than half (2, 6 billion). I think mergers or acquisitions even among low cost companies in Europe are inevitable within the next five years, he explains Courier service Michael O’Leary, owner of Ryanair, believes that the marriage between easyJet and Wizz Air is almost a natural solution. His company is not targeting either the British carrier or the Central European carrier because – O’Leary jokes – with them we would reduce our profitability and increase costs. The CEO does not say he is worried about the possible union: Ryanair, according to him, would still be the best company in the low cost segment.
The rumors about the move
Word of Wizz Air’s interest in easyJet begins to circulate in European financial and industrial circles in June. Several consulting firms are preparing in the hopes of being hired on both sides for a due diligence with multimillion-dollar fees. Some legal offices are starting to think about the practical consequences of the union between the two carriers from an EU Antitrust perspective. At 6:08 pm on June 15 the Courier service send a WhatsApp message to a Wizz Air spokesperson to try to understand something more. Can’t comment, the dry reply at 6:16 pm. Not a confirmation. But not even a denial. And for this very reason, five minutes later, here is the further clarification: This rumor lacks credibility. In fact, preparations are underway. According to various sources, the formal offer to easyJet would have been made at the end of July. But from the British headquarters they do not give details, not even names. The offer arrived recently and we cannot reveal from whom, he explains by e-mail to Courier service an easyJet spokesperson.
In rejecting the proposal, easyJet approved a £ 1.2 billion (€ 1.4 billion) capital increase and agreed on a new four-year $ 400 million (€ 340 million) four-year credit line. The whole operation not only strengthens our balance sheet by allowing us to accelerate post-Covid recovery – Lundgren explains in the note -, but it will also position us for growth so that we can take advantage of the strategic investment opportunities that are expected to arise as the European aviation industry will emerge from the pandemic. The British carrier is convinced that it can take advantage of the period to gain market shares. But since it is not seen in the low cost category, but hybrid – explain two of the sources – the goal, if anything, of having synergies with Air France or British Airways, strong companies in Paris and London, cities where easyJet also has an important presence. .
Perspectives of the British
With Air France – the reconstruction – there have been contacts in the past. The direct line has never been completely interrupted, but it hasn’t even gone any further, for now. After all, Air France also has to deal with the presence of the Dutch KLM, the other half of the group that generates greater profits than the French in proportion. a scenario that analysts do not rule out. Just as they do not consider it illogical to merge easyJet with British Airways to lock down the main markets to / from the United Kingdom: Spain (where there are also Iberia and Vueling, of the same British holding company), France, Italy. With an easyJet inside some traditional group, Wizz Air could look to Lufthansa which has never disdained Eastern Europe.
An army of over a thousand planes
These would be almost revolutionary scenarios for the continent. And that relate to reality with hundreds of planes. EasyJet, for example, expects to rise to 331 aircraft by September 2024, has ordered 101 more and optioned 20. Ryanair and Wizz Air are even more aggressive. The Irish low-cost aircraft will reach about 600 aircraft (all Boeing 737, traditional or Max) in the coming years from 451 at the end of June, Wizz Air to 246 Airbus A320 and A321 by 2026 (from the current 141), but it should prepare to ask another hundred. The shareholders of the Hungarian low cost include both the CEO (with 1.5% of the shares), and the American Indigo Partners which also owns shares in other low cost companies such as Frontier (in the USA), JetSmart (Chile). and Volaris (Mexico).
Experts are divided. According to Iba, at an operational level, there are obvious differences. EasyJet’s flights focus on cities in central and western Europe and the slots assigned are in primary airports, Wizz Air’s connections are more in the central-eastern part of the continent and slots in secondary airports, the insiders reason . Also the use of the aircraft, taken the top fifteen routes by number of seats and frequencies, differed: an average of 1.2 hours per flight for easyJet, almost double (2.2 hours) for Wizz Air. EasyJet’s network and penetration rate coupled with Wizz Air’s low-cost management would be a winning combination and a major change in the European skies, writes Daniel Roeska, analyst at Sanford C. Bernstein. Which, however, highlights how the arrival of the Hungarians would probably be greeted with significant cultural reservations by the British. A Bank of America report adds that easyJet is in a stronger position to benefit from the robust resumption of tourism travel in summer 2022 in Europe.
The trend on the stock market
At easyJet they know they won’t be able to go it alone for long. So also in Wizz Air. The market for now mainly rewards the Hungarians. From January 1, 2020 – that is, on the eve of the pandemic – until September 15, 2021, the value of Wizz Air shares increased by 18.5%, easyJet lost 60.4%. In between Ryanair with + 3.5%. But if the time horizon is extended to the last five years, the British carrier has almost halved the value on the London Stock Exchange (-47.1%), Ryanair has increased it by 18.6%, little compared to Wizz Air which marks + 192.6%. Investors, in short, between easyJet and Wizz Air have decided which side to take sides. At the moment.
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