* Wizz Air has grown to be biggest low-cost carrier in
* Financing from U.S.-based Indigo Partners was vital
* Rapid expansion to continue as Wizz explores new markets
By Marton Dunai
BUDAPEST, July 17 When a group of Hungarian
businessmen told the manager of a shabby air strip in southern
Poland that they wanted it as a base for a new airline, none of
them had any idea that it would quickly become the biggest
low-cost carrier in eastern Europe.
Wizz Air's maiden flight to London took off from Katowice in
May 2004. It now has over 300 routes, annual revenues of 1
billion euros, counts Ryanair, another no-frills airline
as its main competitor, and dominates air travel in a region
with faster economic growth than the rest of Europe.
Organic expansion in the region and as far afield as Moscow,
Tel-Aviv or Dubai is set to continue while a new phase of growth
is likely to come from Wizz Air exploiting the difficulties of
state-backed regional airlines that are struggling to survive.
"These airlines either disappear, or merge, or shrink a lot
from their current size," said Jozsef Varadi, Wizz Air chief
executive and a former Procter & Gamble executive.
"Either way that means opportunity for Wizz Air."
Varadi set up the airline after trying, without success, to
reform Hungary's Malev. When Malev eventually collapsed in 2012
Wizz Air stepped in to pick up many of its routes and
It plans a listing on the London Stock Exchange to raise
money for expansion, though an offering scheduled for June this
year was pulled, with the company citing unfavourable market
conditions. It has said it would try again, but it is unlikely
to do that this year.
Wizz Air is nevertheless, well placed to pounce on other
regional airlines - Poland's LOT, Czech Airlines,
Latvia's Air Baltic, and Slovenia's Adria Airways are all
propped up by state aid.
LOT is especially vulnerable, with local press reports
saying it is in financial difficulties and Wizz Air has many
Polish-speaking flight crew and five operating bases in Poland.
Varadi was in Poland with other founders of the airline
looking for a base. They decided on Katowice for the first
flight, which took off two weeks after seven ex-Communist states
joined the European Union, giving their combined 70 million
people opportunities to travel that they had never known before.
At the time, less than 5 percent of people in the region
flew, aviation professionals estimate, compared to nearly half
"We were near Katowice, on a cold winter morning in late
2003...We could not find the airport to save our lives. There
were no signs," Varadi said.
"The airport served 200,000 people in a year. Today it
serves 2.5 million, more than half of which is us. We put that
airport on the map."
The executives knew the low-cost model they had chosen
could only work if they achieved an economy of scale. That meant
lots of passengers, many flights and large planes to keep the
costs down. They quickly started to run out of money.
Then Indigo Investments, a Phoenix, Arizona-based investment
group specialising in aviation, gave Wizz Air a small capital
injection in the early autumn of 2004, followed by a bigger
investment in February the next year.
The group is headed by Bill Franke who was at one time
chairman of America West Airlines and has invested in airlines
including Mexico's Volaris, Florida-based Spirit, and
Singapore's Tiger Air.
Along with his cash, Franke shared with Wizz Air his
industry expertise, procurement connections and staffing, said
people familiar with the companies' cooperation.
Franke declined to be interviewed for this article, and
Indigo declined to comment. Niether Indigo or Wizz will say how
much of the company Indigo now owns.
The Eastern European low-cost market offers huge
opportunities. It is expected to grow to $4.12 bln by 2018 from
around $3 billion this year, according to Euromonitor
International, or a growth rate of 40 percent compared to 20
percent expected in Western Europe during the same period.
Wizz Air stole a march on its low-cost rivals by entering
the untapped eastern European market first, but Ryanair has
since caught up.
When Hungary's Malev folded, Wizz Air and other airlines
also increased capacity or opened new routes. Ryanair within
days had opened new routes from Budapest airport, although it
downscaled later over a row about airport fees.
There has been speculation that mainstream European airlines
would like to takeover Wizz Air, giving them access to the
low-cost market in the region. Air France KLM and Lufthansa
denied having any interest in Wizz, which also said it was not
in takeover talks.
Ryanair remains Wizz Air's fiercest competitor, with the two
companies expected to entrench for an intensifying competition
for share of a quickly expanding market.
"Demand for aviation in Wizz Air's core region of
Central/Eastern Europe is projected to grow faster than the rest
of Europe, due to higher GDP growth and lower current levels of
penetration of air travel," industry analyst CAPA said in a
report in May.
"Nevertheless, Wizz Air's planned increase in traffic is
much faster than market growth and will require further market
Wizz Air is now in a straight fight with Ryanair to keep
costs down and squeeze revenue from passengers.
Their average ticket prices are nearly identical. The two
airlines are fairly close to one another on the main benchmark,
cost per available seat kilometre, which for each carrier is
around 0.35 euro cents.
Ryanair, Europe's leanest airline, does better on fuel,
airport services, and the cost of the aircraft it operates,
according to the Centre for Aviation, an Australian-based
aviation industry consultancy.
Yet Wizz Air is leaner than Ryanair in others ways, in part
because its workforce is based in lower-cost eastern Europe.
Varadi is confident Wizz Air's growth rates will continue.
"We have produced an annual growth rate of about 15 percent
in recent years and our portfolio is so diverse, we are present
in so many markets, that I think we can keep that up regardless
of any turbulence," said Varadi.
($1 = 3.0386 Polish Zlotys)
(Additional reporting by Gergely Szakacs in Budapest, Christian
Lowe in Warsaw and Victoria Bryan in Frankfurt; editing by Anna