JUST a few hundred metres from Budapest airport’s runways, the wails of scorched airline passengers echo around an industrial estate. But no real people are being harmed. Here Wizz Air, a rapidly growing Hungarian carrier, trains cabin crew and pilots in evacuating its planes safely. Last year the airline recruited 1,000 new staff, twice as many as the year before. In February construction work started on a bigger training centre to teach an extra 1,400 cabin crew it will need next year.
If anyone will be burned by this expansion it will be Europe’s cheapest airline, Ryanair. Over the past two decades its chief executive, Michael O’Leary, turned the Irish minnow into Europe’s biggest carrier by copying the low-cost model of Southwest, an American budget airline. It has long had no-frills rivals such as easyJet and Norwegian. But these two have never been able to match Ryanair’s low cost base. Yet after Wizz’s full-year results on May 24th, in which it reported record profits, analysts say the carrier is about to do just that (on the basis of cost incurred for each “available seat kilometre”, a measure that takes into account distance flown). Wizz is now launching an assault on Ryanair’s western European strongholds.
Already the biggest airline in eastern Europe, Wizz has aimed to expand across the entire continent since the start, says Jozsef Varadi, its founder and chief executive. Its first flight from Katowice in Poland to London in May 2004 came just weeks after Hungary joined the EU, which allowed its airlines to fly anywhere within the bloc. So far it has focused on flights between eastern and western Europe. Booming flows of migrants and tourists on these routes have increased its passenger numbers from 14m in 2014 to over 28m last year (see chart).
Mr Varadi now thinks the time is right to start flying within western Europe. In May Wizz launched a British unit to fly new routes within the region, such as from London to Iceland and to Bari in Italy. Juicier fares and profits are a big lure. Wizz also sees Ryanair’s recent troubles as an opportunity. The Irish carrier is struggling to find enough cheap labour to man its flights. Last September it cancelled 20,000 flights because of a pilot shortage. It has also lost a court case over cabin-crew contracts, a judgment that will swell its pay bill.
Keeping staff costs low is essential for Wizz and Ryanair. The Hungarian upstart does not just look like a “Ryanair mini-me”, explains Daniel Roeska of Bernstein, a research firm. It is one. One of Ryanair’s early investors, Bill Franke of Indigo Partners, a private-equity firm, is also Wizz’s biggest backer. It saw in Wizz an opportunity to take the Ryanair model to an extreme. Wizz cuts basic fares lower than Ryanair and makes even more back in extra charges on luggage and the like. It also wants to avoid complications such as connecting flights—which Ryanair has started to offer—so they do not bloat its cost base.
Wizz’s big advantage is that its home country has some of the lowest labour costs in the EU. It can undercut Ryanair on pay while appearing to offer good jobs by local standards. Its Irish rival, in contrast, is often pilloried for treating its staff badly by western European norms to save money.
Ryanair’s trump card is that its size and established status means its cost of aircraft ownership is lower than for Wizz. But the gap is closing, Mr Varadi says. As Wizz’s profits grow it can borrow money and lease planes more cheaply. And it has started to get discounts on new jets by buying in bulk with Indigo Partners’ other airlines across the world.
To its credit, Ryanair has long prepared for the day a competitor rivalled it on cost. Its chief financial officer, Neil Sorahan, points out that seats on short-haul flights are a low-margin commodity. There is little to stop another airline competing away your profits, he admits. And so Ryanair wants to use its heft in the airline business to profit from selling high-margin holiday extras such as hotel rooms, car hire and the like. Kenny Jacobs, its chief marketing officer, wants its website to be the “Amazon of travel”, even selling airline tickets for its competitors. Ryanair is not rolling over, but its planned diversification is a sign of how much Wizz has achieved.