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Life beyond Malév

One Hungarian low-cost carrier is eyeing underdeveloped eastern markets as a platform for growth, finds Martin Roebuck
 

Some 20 airlines are for sale in central and eastern Europe “because management and governments have run out of ideas what to do with them,” believes Wizz Air chief executive officer, József Váradi.

 

Váradi has developed Wizz Air into the largest airline in the central and eastern European region, and into one of Europe’s top five budget carriers, with 16 operating bases in nine countries. It serves 94 destinations in 33 countries with a fleet of 43 Airbus A320s, and plans to increase from 270 to 300 routes as eight new aircraft arrive this year and next.

 

Before setting up Wizz Air in 2003, Váradi spent two years running Malév, the now defunct Hungarian flag carrier, so he has sat on both sides of the legacy/low-cost divide.

 

He told the recent Routes exhibition in Budapest that Hungary had shown there was “life beyond Malév” by building back its traffic to previous levels. The old paradigm that no country can survive without a national airline was no longer valid, he contemplates.

 

Wizz Air increased its revenues by 20% last year and expects to carry 13.5 million passengers this year, up from 12 million in 2012. Váradi is confident the carrier can maintain growth rates of 15 to 20% for the next few years, benefiting from legacy carrier’s struggles in the region.

 

He will keep off the home turf of Ryanair and easyJet by focusing on eastward expansion. Wizz Air is exploiting previously untapped markets such as Tel Aviv, Israel; Baku, Azerbaijan; and Kutaisi, Georgia, and will be the first low-cost carrier (LCC) to call at the new Dubai World Central airport from October.

 

Wizz Air will add 10 new weekly services from Bucharest after deploying a seventh Airbus A320 there from July, and is also taking tentative steps into the Slovakian market, left vacant when Bratislava-based SkyEurope collapsed in 2009.

 

“SkyEurope had a great name, but made mistakes. It could match the legacy carriers, but that was setting the bar too low. It couldn’t compete with Ryanair or us,” Váradi explains.

 

His own expansionary ventures haven’t all succeeded. Wizz Air Bulgaria was forced to merge back into the Hungarian operation in 2011, and Wizz Air Ukraine has also found life difficult. Earlier this year, Akos Bus, director general of the Kiev-based subsidiary, complained that the Ukrainian authorities were blocking licence applications.

 

Váradi puts a more positive spin on this. “Ukraine is still a bilateral regime and there is general difficulty getting market access. It’s hard to predict the outcome of liberalisation negotiations with the EU.

 

“These have been going on for eight or nine years now, but the situation has changed following the collapse of domestic carriers like AeroSvit. It has changed attitudes.”

 

Wizz Air is now the number two LCC in Ukraine, Váradi says. “New infrastructure has been developed there, and that capacity must be put to work to utilise the investment.”

 

Similar regulatory constraints have hindered the opening up of Russia to LCCs. The world’s ninth-largest aviation market today has no domestic low-cost services, and LCCs posess no more than 2% of the international market – a share that is forecast to grow to 35% if current rules are relaxed.

 

Late last year, Moscow reduced the minimum fleet requirement from eight aircraft to three, making it easier in principle to launch operations there. But there has been no move yet on the requirement for tickets to be refundable and for checked luggage and in-flight catering to be included in the base fare.

 

“We have heard more words than action,” Váradi says. “Russia is still holding on to the old rules. We have been contemplating various ways of penetrating the market, such as a joint venture or subsidiary, but we need to understand better how the system will evolve.” 


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