Wizz Air (LSE:WIZZ) shares have offered strong returns to investors historically. Over a one-year period, the shares are up 39%. If I pull this back further to take into account the pandemic, over two years, the shares are up 50%. This performance from an airline that has been hurt by the Covid crisis is impressive. So is this the best aviation stock pick for me to get exposure to the sector right now?
Positive results giving optimism
The performance in the short run can be pinned on the latest trading update. About a month ago, it released the results for the three months to the end of June. These were positive both in the results and in the outlook.
Wizz Air carried 3m passengers during the quarter, more than four times the number in the same period last year. It was also encouraging to see flying capacity at 62% of 2019 levels.
Looking forward, it made a bold statement that “in July and August 2021 we expect to operate around 90% and 100% of our 2019 capacity, respectively, making Wizz Air the first major European airline to fully recover capacity to pre-Covid-19 levels”.
I’ll have to wait to see whether these numbers are achieved when a refreshed trading update comes through. For the moment, the optimism is clearly carrying Wizz Air shares higher.
Wizz Air shares vs competitors
Wizz Air shares might be a good buy, but what about being the best in the sector? It’s a difficult comparison to make as there’s a broad range of airlines to choose from. The largest one that garners a lot of attention is IAG, the owner of British Airways and other airlines.
From my point of view, I’d buy Wizz Air over IAG shares. IAG has benefited from higher liquidity going into H2, of €10.2bn. Yet the cash burn rate is around €175m a week for IAG, in comparison to €28m per week as last reported by Wizz Air in the annual report.
I also think the short-haul nature of Wizz Air flights will help it going forward. Of the 800+ routes flown, the vast majority are within Europe. This should help it pick up customer demand as flying capacity continues to increase. I think people will feel more comfortable taking flights to destinations not far away, to reduce the risk of being stranded if borders close again. Therefore, I’d buy Wizz Air shares over long-haul competitors.
There are some downsides of buying the shares now though. Looking ahead into the winter, there’s a large amount of unpredictability over the state of Covid-19 and travelling abroad. I feel that airline operators are going to have a tough Q4 and Q1 2022.
Another risk is the move to start operations via Wizz Air Abu Dhabi. Dealing with the MENA region can be difficult, as I’ve seen with other companies in the past.
Overall, I’m considering investing in Wizz Air shares at the moment. As with all airlines, it’s a risky play, but I think it’s in a better position than many others.
