Welcome to the World Aviation Festival from me John Strickland. I'm delighted to be joined today by Jozsef Varadi, CEO of Wizz Air. So Joe, welcome to World Aviation Festival. Let's start off with a few of the challenging things. We've met many times over the years and it's all been exciting positive growth stories, but we're really in a period that's unsettled in every way we can imagine. And Wizz Air is not untouched by that. The biggest one perhaps that's on your plate right now is the Pratt & Whitney GTF engine challenge. It's a technical issue with that engine meaning that aircraft are grounded all over the world and you have, I think, 40 or so aircraft currently grounded. It's a perhaps a pointless question to say how big a headache is that, but how are you managing that?
Yeah, I mean, I would say that if you look at our challenges, I would classify them in three different categories. One is around geopolitics, and we are disproportionately affected by that. I mean, we used to be the largest airline in Ukraine, the largest international carrier to Israel, and you see what is happening there, and those events made significant impacts on our business. But you kind of learn how to deal with that. You learn how to reallocate capacity and restabilize your business on that basis. The second category is what you mentioned around the wobbling nature of the supply chain, which seems like never ending, and probably we are now seeing a new phenomenon. The supply chain environment is no longer as benign as it used to be. And the third challenge effectively is how do you translate all of that into your operating model, because you cannot rely on perfection delivered by others, and you have to be still intact with your consumers, and you have to make sure that you properly operate the airline in a different context of life and in a changing environment. So I would say that those three matters have profound impacts on the company. So back to Pratt & Whitney, which is probably the single biggest issue we are facing at the moment. Interestingly, our fleet has been growing very dramatically, roughly around 20% a year, but our capacity is flat as we speak year on year, which means that 20% of our capacity is on the ground due to the GTF engine inspections. I mean, that's a big issue, because it's not just an issue of managing capacity, but just think about this: we had to invest a lot into more spare engines, we had to extend all the aircraft operations in order to maintain capacity in the market, not to give that capacity over to your competitors. Even we had to take some wet lease from the market, which is very inefficient and economically punitive. We have to carry some slack and unproductivity in the organization to make sure that once we are ramping back up, we have the resources available. So lots of issues you have to deal with beyond just the engine being inspected and aircraft on the ground. And I think the learning from our perspective is that simply we have to have an adaptive mindset. We have to make sure that whatever happens, we continue to adapt and you build your operating model for resilience. I mean, we used to be building our operating model in the past for perfection. That's not good enough and that doesn't work. So for example, if we had 12 hours available to us to fly the crew, we were scheduling that crew for probably 11 hours 55. Now that doesn't work in the current environment, so you have to create that level of resilience that makes you still a good operating entity.
And just briefly again on the engine: the challenge as well is it's not a quick fix, is it? Each engine from what I've been reading, it's up to about a year for each engine to be repaired, and they don't have spares to hand over to you while those repairs are going on, hence the groundings.
Yeah, I would say that the GTF issue is a compression of two different problems. One is that the GTF is a breakthrough technology and like every breakthrough technology has its own childhood diseases. So you kind of learn how you operate the engine, that it doesn't work the way it was intended, it breaks earlier than intended, etc. So you have those issues, but that would happen to any new technology. And on top of that, Pratt & Whitney found that they had some contaminated materials called the powdered metal used in molding certain parts of the engines that need to be replaced. So those two issues compounded and overlapping at the same time create a real problem because the number of shop visits and technical inspections required simply just overwhelmed the system. The entire system overwhelms their production, overwhelms their shop capacity, their organizational capacity, availability of engineers, etc. As a result, we used to have around 70 days wing-to-wing when an engine went to a shop, and that 70-day period became more like 300 to 320 days nowadays. I think this is a cycle so we just need to go through this cycle. Probably that's going to drag us into the current situation for another two to two and a half years. We've probably bottomed out, but improvement is going to be incredibly slow and gradual from here. So I think you just have to breathe normally and move through it.
Absolutely. And he talked about geopolitics. So running along with this big engine problem, you described the situation already: Israel-Gaza, Ukraine, other touch points that are risky from a security point of view. You've manipulated the capacity, moved it around, but you're still planning enormous growth in the years ahead. You have this slogan Wizz 500; it slipped back slightly. You'll have around about 500 aircraft by 2032 maybe a couple of years later than planned.
Yeah, but this is mainly due to what we are seeing in the supply chain issues on the OEM side that simply no OEM is able to build their aircraft in line with their commitments to the markets. Everything is getting shifted, delayed, and later and later delivered. So I think this is just the new reality of the performance. But from a market standpoint, actually we feel very comfortable with the market opportunities we have. So if I add up all the geopolitical zones, this is not more than probably 15% of our business. But coming out of COVID, we made a number of strategic decisions. We basically reset our footprint, our network footprint, so invested into brand new markets like London Gatwick, Italy, Albania, setting up an airline in Abu Dhabi (Wizz Air Abu Dhabi). So we simply expanded our market footprint dramatically with the view that that extended footprint will deliver us new layers of growth opportunities. So this is more like hedging our bets, if you want to put it that way. But we are still sticking to the core strategy of Central and Eastern Europe, and we think Central and Eastern Europe is a great market that will continue to give us the growth opportunities we need for the business. Economies are converging, GDPs are growing, and they translate into disproportionate airline growth relative to mature markets like Western Europe. So we feel actually very comfortable with our ability to take advantage of this expanded footprint and the growth opportunities coming from our core markets.
