Wizz to float on LSE – but it may be hit hard by compensation claims

Dino D'Amore
By Dino D'Amore May 22, 2014 13:37

Wizz to float on LSE – but it may be hit hard by compensation claims

So Wizz it to float – but would you buy-in? Wizz stands to lose a great deal if a man from Manchester, England gets his way in court.

Wizz Air is to float on the London Stock Exchange the Hungarian low cost confirmed this morning, with Barclays, Citi, JP Morgan running the share sale while Nomura acts a lead manager. Wizz is seeking to gain €200m ($273m) in a share sale to strengthen its balance sheet.

But will Wizz be worth what it is now in 12 months?

It can be argued that Wizz, above all other airlines, has more to lose from a court case in the UK than any other EU airline.  Remember the name Ronald Huzar from Stockport? He may well change the compensation landscape within the EU as he argues that technical faults on aircraft should not be classed as extraordinary circumstances, thus avoiding compensation claims.

Company director Huzar endured a 27-hour delay on a flight from Malaga to Manchester Airport in October 2011 with Jet2, following which he issued legal proceedings against Jet2 but his compensation claim was turned down at Stockport county court. Huzar then successfully appealed at Manchester county court and the case is now due to be heard today at London’s Royal Courts of Justice after Jet2 lodged an appeal.

Current EU regulations entitle passengers to compensation if a flight is delayed by more than three hours – unless it is caused by an extraordinary circumstance. Huzar said technical faults were ‘inherent in the running of an aircraft’ and should therefore not be considered an extraordinary circumstance. The case, which his solicitors believe could open the floodgates for delayed passengers to claim compensation, will decide whether a delay due to a technical defect on an aircraft can be considered to be an extraordinary circumstance.

Wizz was bottom in a recent EU on-time survey hence it will have to sharpen-up if its shares are not to suffer in the event of this court case setting a precedent.
Ironically, the Jet2 delay was due to a genuine fault, it was caused by a wiring defect in a fuel valve circuit.

Meanwhile: IATA has reported regional traffic results for March which make for very interesting reading:

•    Premium traffic: +1.9% year-on-year;
o    Within Africa: -3.9%;
o    Within Far East: -2.2%;
o    Within North America: +3.5%;
o    Within South America: -12.1%;
o    Within Europe: -1.6%;

•    Economy traffic: +0.5%;
o    Within Africa: -5.4%;
o    Within Far East: -3.0%;
o    Within North America: +6.7%;
o    Within South America: -9.2%;
o    Within Europe: +1.2%.

As emerging market economies continue to slow, we should expect to see significant pressure on premium traffic figures in those areas. The South American slowdown should be offset by the FIFA World Cup this year running through figures from late June but the overall prognosis is that some other airlines need to follow LATAM’s significant fleet harmonization efforts of late. The slowing of African growth comes at a time when the South African economy is slowing rapidly and this is the reason for the bulk of the negative figures in that region.

Dino D'Amore
By Dino D'Amore May 22, 2014 13:37
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