The Wizz Air (LSE: WIZZ) share price rose by more than 10% on Friday afternoon as investors rushed back to travel and leisure stocks amid a period of considerable market turbulence triggered by Russia’s invasion of Ukraine in late February.
Investors, including myself, have been on the hunt for bargains amid this current period of market volatility, and on face value, Wizz Air — which is down 50% over the year — offers huge upside potential.
However, I’m not too optimistic about this stock’s short-term outlook. Despite holding Wizz Air in my Fund & Share Account, I’m not expecting the share price to hit 2021 heights any time soon.
Wizz Air is also not a good option for me as a passive income stock, as it is not offering any dividends to its shareholders at the moment.
Cause for concern
The Budapest-headquartered budget airline has been considerably more afflicted by the ongoing conflict in Ukraine than its peers, including easyJet and International Airlines Group, and there’s a number of reasons for this.
The low-cost carrier has slashed its business growth target after stopping the sale of flights to and from Russia and Ukraine. Wizz Air was the only EU carrier to have a base in Ukraine and operated 45 routes out of the country. The company has also shifted flights into and out of Moldova to neighbouring Romania.
Beyond the operational disruption, Wizz Air was poorly positioned to absorb soaring fuel prices. Global jet fuel prices surged to near 14-year highs this week as Western nations introduced sanctions on Russian oil and gas.
But while most major airlines had hedging strategies to protect them against severe fluctuations, Wizz Air had stopped hedging, leaving it phenomenally exposed to the current price spike. The airline has even had to cut 7% of its flights in March due to its lack of forward planning.
Recent performance
The current headwinds follow two tough years for the company,…