Strategic Analysis and Valuation of Wizz Air

Haris Nogo

Student thesis: Master thesis

Abstract

The purpose of the thesis is to prepare a strategic analysis and valuation of Wizz Air. Wizz Air is the largest low-cost airline in Central and Eastern Europe and has seen enormous growth over the years, which has made Wizz Air one of the ten largest airlines in Europe. The Covid-19 pandemic has however led to a declining demand for air travel, which has affected Wizz Air and other airlines. This makes it an interesting case as the pandemic has led to uncertainty within the airline industry. In the strategic analysis, well-known strategic frameworks have been used, such as PESTLE, Porter's Five Forces, VRIO and SWOT. Based on these models, the strategic analysis revealed that the Covid19 pandemic has a major impact on the external factors, such as the closure of borders, recession in countries and changing work habits. All these factors can affect the demand for air travel. The analysis furthermore also revealed that the customers have a high bargaining power as they are not loyal to a particular airline, which is why competition was considered to be fierce among low cost and full fare airlines. Finally, Wizz Air's strong balance sheet was considered to have a competitive advantage in these difficult times, as they have the best liquidity among all airlines in Europe. The financial analysis was based on the historical accounts where it was revealed that Wizz Air has performed really well within the last five years. Based on the strategic and financial analysis, a forecast was prepared. Based on the forecast, the share price was estimated at 29.25 Euros in the DCF model. The share is estimated to be overvalued by 20% in comparison to the share price from October 1st, 2020. The estimated value in the DCF-model was compared with the value estimates from the relative valuation approach, where the multiples indicated a value of between 38.18 and 43.59 Euro per share. Subsequently, a sensitivity analysis was performed, which revealed that Wizz Air's value estimate is very sensitive to even small changes in WACC, terminal growth rate, fuel cost or lease depreciation. The scenarios revealed that if a recovery occurs earlier than in the DCF model, it will lead to a higher share price, while a slower recovery will result in a lower share price. The perspectivation highlighted factors, such as introduction of Monte Carlo simulation in the DCFmodel, impact on a change in accounting policies on the value estimate and the value of synergy effects, that could have been incorporated to strengthen the analyses.

EducationsMSc in Accounting, Strategy and Control, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2020
Number of pages97