ANDRIEVSKII.CH: Wizz Air and the Market's Antagonism: Oil Is Already Priced In, Peace Is Not

Over the past four years—from the outbreak of the war in Ukraine to the subsequent conflict between the United States and Iran—shares of European low-cost carrier Wizz Air have lost around 75% of their market value. Such a decline suggests that the market has already priced in the consequences of higher oil prices, rising operating costs, and the deterioration of the company's financial performance.

Markets Price in Bad News Faster Than Good News

Recent weeks point to a possible asymmetry in the way markets assess risk.

The rise in aviation fuel prices has been almost fully reflected in Wizz Air's valuation. However, the subsequent decline in oil prices has not yet resulted in a comparable reassessment of the company's value. In other words, the market has been much quicker to discount a negative scenario than a potential improvement in business conditions.

This behavior is typical of financial markets. As long as uncertainty surrounding the Strait of Hormuz remains, investors tend to price in risk rather than its possible disappearance.

Earnings Confirm the Pressure on the Sector

Wizz Air's latest results only confirm the scale of the external pressures facing the company.

For the quarter ended in June, Wizz Air reported a loss of EUR 198 million, compared with a profit of EUR 38.4 million a year earlier. Revenue increased by 5.5% to EUR 1.51 billion, although it came in slightly below analysts' consensus expectations.

Operational performance, however, remained resilient. Available Seat Kilometres (ASK) increased by approximately 20%, while available seat capacity rose by nearly 25%.

The company maintains liquidity of EUR 2.3 billion—one of the strongest liquidity positions among European airlines.

The largest drag on earnings came from higher fuel costs, which increased by approximately EUR 100 million compared with the same period last year. Another headwind was weaker unit revenue, with Revenue per Available Seat Kilometre (RASK) declining by around 8%.

Management expects conditions to improve gradually in the second quarter, forecasting RASK to decline only by the low single digits compared with the previous year.

Chief Executive Officer József Váradi also confirmed that the Pratt & Whitney GTF engine issue remains the company's biggest operational challenge. According to him, the disruption is expected to be resolved progressively over approximately 18 months.

Higher fuel prices and softer demand have weighed on virtually the entire European airline sector. Ryanair and easyJet also reported lower profits, IAG scaled back part of its growth plans, while Air France-KLM reduced its 2026 capacity outlook.

The Market's Main Antagonism

This is where the market's main contradiction emerges.

The factor that has weighed most heavily on Wizz Air's earnings is gradually beginning to ease. Yet the company's market valuation remains close to the levels established during the period of maximum pessimism.

Despite continued volatility in aviation fuel prices and ongoing geopolitical uncertainty, UBS analysts are already valuing the company beyond the current crisis. The bank maintains its Buy recommendation and a £16.05 price target, implying approximately 60% upside from Wizz Air's current share price. In UBS's view, the company remains one of the most compelling investment opportunities among European airlines.

If geopolitical tensions continue to ease and fuel prices stabilize at lower levels, the market will likely have to reassess its expectations for the future profitability of Europe's low-cost carriers.

The key question today is no longer how fully the market has priced in the consequences of war, but how quickly it will be able to price in the consequences of peace—provided that peace proves to be durable.

Andrievskii Verdict

Over the past several years, the valuation of European airlines has been driven primarily by oil prices, geopolitics, and political risk. When external factors become the dominant driver of business valuations, fundamental characteristics inevitably move into the background.

If fuel prices continue to decline and geopolitical risks lose their dominant influence, this process may begin to reverse. Investors' attention would once again shift from the news cycle to operating performance, management quality, and companies' ability to generate profits.

The market almost always notices war first. But the greatest fortunes are often made when it spends too long refusing to believe in peace.

Aleksei Andrievskii | Advisory Board Member, Bendura Bank AG | Liechtenstein