Wizz Air (WIZZLN 26s; Ba1/NR/BBB- Neg) 1Q25 (3m to June) Results

It touting EBITDA margin expansion but we are more interested in EBIT that came in at €44.6m down -44%yoy and at a mere 3.5% margin - it puts it at the bottom of € airline issuers. It's saying that was impacted by higher depreciation and amortisation (€230m/+47%) (that's despite LOWER aircraft utilisation which should help the former) and €39m in one-off wet lease costs (its taking out wet leases to boost capacity as ~1/4 of its fleet remains grounded). Granted that may be dragging but 1) it receives compensation for Pratt and Whitney for the groundings (+€57m in net "other income" this qtr) and is captured in EBIT and 2) broader unit cost increases vs. pricing trends look weak. Latter its blaming on leased aircraft having poorer fuel efficiency. Net its left it guiding to FY25 net income of €350-450m up +9% at the midpoint on last years €366m but a big revision down from previous €500-600m and a large miss on consensus that took that to move to high €400's/+30%yoy. We don't think the €26s need to panic with liquidity and cash generation fine. For those on the side-lines; it can only par call the line starting late next year (hence when refi looks likely at earliest) and by then the GTF engine issues will be over leaving no excuse for any weakness and giving us a better read at fundamentals.

• Capacity was -1.2% which it says is in line with guidance, passengers were unch leaving load factor stable at 91%.
• Unit revenues (RASK) actually increased by +3.1% with passenger/ticket RASK +3.2%. Unit cost unfort. are netting that out; ex. Fuel CASK +8.2%, fuel +5% to leave total +7%. It's saying rise is on below groundings and wet leases its taken out to boost capacity which are with lower fuel efficiency aircraft. It says it will exit wet leases in Q3 (Oct- Dec) and hence should be looked at as a "one-off".
• It currently has 46 aircraft grounded (of total ~210 aircraft) as they undergo GTF engine inspections. It says it is receiving compensation for this but not disclosing amounts - we see €57m under total "other income" which is where this is recorded. It has revised down peak groundings from 50 to 47 and will roll over in September next year. It is still assuming 300-day turnaround on inspections.
• FCF was firm at €571m (up from €315m last year) boosting cash on hand from €1.6b to €1.8b. Still gross debt grew from €5.5b to €6.6b, leaving net debt significantly higher at €4.8b (vs. €3.8b last year). On LTM EBITDA of €1.2b it leaves it 5.3x/3.9x levered. This is still down from last years 7x given the earnings recovery. Note FCF tends to be seasonally strongest in Q1. We don't mind looking at net metrics given co is targeting deleveraging.
• Guidance vs. previous May guidance; capacity to be flat (unch), load factor at 92% (unch), unit revenues (RASK) up MSD (prev. HSD), unit costs ex. fuel up HSD (unch), fuel flat (unch) - all to leave net income in €350-400m range (prev. €500-600m).
• On fuel it's hedged 65% for FY25 (12m to March) at ~$800 vs. spot {JET1NECC Index; 790}.
• Its blaming the net income cut on 1) the lower unit revenues driven by industry wide pricing/yield pressure 2) the one-off wet lease costs 3) structural air-traffic issues.