A key focus of the WCM International Small Cap Growth portfolio is to find quality global companies with durable, strengthening economic moats and corporate cultures aligned to this growth. An example of a company that demonstrates these characteristics is Wizz Air (Wizz).
Despite operating in a highly competitive space, Wizz Air has a structural cost advantage which has enabled it to consistently grow market share year after year.
In this update, Greg Ise of WCM Investment Management (WCM) explains how Wizz Air’s culture and structural cost advantage differentiates itself to be the leading low-cost airline in Central and Eastern Europe.
Tom Hickey (TH): Hello and welcome to this Stock and Focus update for the WCM International Small Cap Growth Fund. Today I’m joined by Greg Ise from WCM Investment Management. How are you, Greg?
Greg Ise (GI): Doing well, thanks. How are you?
TH: Very well, thank you. Today we’re talking about a company called Wizz Airline. Can you tell us a bit about this company and why you like it?
GI: It’s a fairly straightforward business, but with some real intricacies around it that differentiate it. Wizz is the leading low-cost airline in Central and Eastern Europe, operating entirely short haul flights using a single aircraft.
TH: What’s the competitive advantage like at Wizz? Do you see that getting stronger over time or contracting?
GI: It’s fair to say that arguably the airline industry is one that has not generally aligned with WCM and our view around moat trajectory.
What’s interesting about Wizz Air is the mere fact that it has a structural cost advantage and it uses that to re-invest into constant pricing, which results in higher load factors and higher profitability. It then reinvests into pricing, which ultimately has allowed Wizz to continually expand its routes, its fleets, and the number of bases to grow its market share consistently year after year.
TH: Talk to us about the culture at the company and how that supports that competitive advantage.
GI: Wizz Air are all about cost-cutting and maintaining that structural cost advantage. Everything that it does revolves around that idea, which is why it operate a single aircraft only, it doesn’t do long haul flights, and it doesn’t offer any kind of first-class amenities.
It’s trying to leverage its position as a growing airline to constantly achieve the best terms with airports and maintenance crews to maintain that cost advantage, which again just goes right back into pricing for customers.
TH: Great. Thanks for your time.
GI: Thank you.
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