By Guy Taylor
Wizz Air boss Joszef Varadi has long been a staunch defender of capitalism.
In the last year, the airline executive took aim at London market’s “socialistic” corporate governance rules, courted controversy for telling fatigued staff to go the “extra mile,” and fought back against investors who objected to his £100m bonus scheme.
All three stances were likely to provoke a debate but at a time when City chiefs are under fire for hefty pay packets, it is Varadi’s bumper payout that has drawn the most scrutiny.
Shareholder backlash and media criticism has followed the news – but he’s not bothered. “We have a holistic approach that remunerates not only the chief executive, but leadership, management of the company, as well as all the employees,” Varadi tells City A.M. in an interview.
“So that all kind of cascades down every employee of the company… everyone benefits from a scheme like this.”
The collosal payout would be one of the biggest in the London Stock Exchange’s history but it is by no means guaranteed. For Varadi to receive the award, Wizz Air’s share price must hit £120 before 2028. It closed at £21 on Tuesday.
Aside from trickling down to Wizz employees, Varadi told City A.M. the award was justifiable given the amount of shareholder value he would need to create to qualify; around £10bn.
“This is like a commission rate of one per cent. I mean, who the hell would give you money for one per cent. You go to any of the banks, they will charge you two to three per cent easily. So why are you prepared, you know, to pay an institution a lot more than people who actually create that shareholder value?”
“So why are you prepared to pay an institution a lot more than people who actually create that shareholder value?”
The debate over what FTSE chiefs should get paid has raged on throughout this year, fuelled by news of CEO remuneration packets at Astrazeneca, Centrica, the London Stock Exchange Group and Clarkson.
Proponents of higher pay insist that the UK should dish out more to its senior executives to stop talent leaving. But a number of proxy advisers have fought back in recent months, with the likes of Glass Lewis and the ISS describing the proposed pay increases as “excessive.”
“If you apply market principles, you are competing for top talent and top talent are not commodities,” Varadi said.
“CEOs are not in a huge queue, where you go out on the streets and you find thousands of CEO candidates equally qualified for the position. You find someone who is good, you hang on to that guy and you compete.”
“I think increasingly if you’re going to be competing with the Middle East and Asia you have to be competitive. If this is the market, this is the market.”
Wizz Air’s journey
Even the most ardent of critics must concede much of Wizz’s success in the last two decades can be credited to Varadi. From relative poverty in communist Hungary, he rose to found the airline in 2003 alongside the billionaire airline investor Bill Franke.
Last Friday, the London-listed airline rang the bell to open the London Stock Exchange as it marked 20 years since its first flight, a remarkable milestone given how competitive the industry is.
In the pandemic, he was credited with an audacious strategy that saw the airline expand rather than shrink. It ultimately meant Wizz was able to increase critical per-passenger revenues, which are measured by available seat kilometres.
“The whole industry was moving backwards and we were pushing and accelerating forward. I mean, today Wizz Air is 60 per cent larger than our pre-Covid capacity, while the whole European airline industry is still just pushing to reach status quo,” Varadi said.
But things have taken a turn for the worse since then and it would be a steep challenge now to hit the stock price target.
Shares are down over 24 per cent in the last twelve months and Wizz has faced a string of major issues that have offset a booming resurgence in global demand for travel.
Two wars in Ukraine and Israel have had a much more significant impact on Wizz Air than other carriers, given it is the largest inbound flying carrier to both regions. Conflict in the Middle East, which has impacted flights to Jordan and Egypt, has forced it to slash capacity by 10 per cent since October.
“[We] have had to face issues that are very specific to Wizz Air… too many black swans,” Varadi said.
In between both wars, it was hit by supply chain issues involving its Pratt and Whitney-supplied geared turbofan (GTF) engines, which forced it to ground a section of its fleet and slash capacity.
The huge surge in fuel prices caused by resurgent conflict in Ukraine was also felt far more acutely by Wizz, which was forced to rapidly renege on a controversial decision to abandon its hedging strategy.
“What I can say is that this company has gone through the last four years with all these external stress factors and black swans being totally self sufficient,” Varadi argued.
“We have not been bailed out by any governments, we have been able to manage ourselves from our own cash positions and by taking market actions.”
In its full-year results last week, Wizz swung to profit as it flew a record 62m passengers, an increase of nearly a quarter year-on-year.
Passenger numbers have held firm throughout the winter months, despite fears of a tail off in demand and the summer looks to be a busy one.
Varadi thinks the airline is at a “turning point.”
“I think at one point this is going to be recognised by investors and hopefully then we’ll have that development of the share price.”
Over the past six months, shares have risen over 12 per cent. Save any more turbulence and that £100m bonus may start looking a bit more likely.
