VRIO

Wizz Air's internal resources and capabilities will be analysed using the VRIO framework, which was introduced in 1991 by Barney (Petersen, Plenborg, & Kinserdal, 2017, p. 275).

Figure 17: Resources and capabilities at Wizz Air

Source: Own creation Resources and capabilities

Physical Modern fleet and high utilisation Financial Strong balance sheet

Human Good relationship with employees Intangibles Brand name, Wizz Discount Club

The purpose of the VRIO framework is to analyse which resources and capabilities that can create a competitive advantage for Wizz Air. The most important internal resources and capabilities at Wizz Air have been identified in figure 17 and will be further be analysed in the next section.

5.4.1 Physical resources

Wizz Air has a fleet of 121 Airbus aircrafts with a mix of Airbus A320 and A321, where the capacity is 180-186 passengers on the A320, while the seating capacity is between 230-239 passengers on the A321 (Wizz Air, 2020A, p. 8). The average age of Wizz Air's fleet is 5.4 years, making the fleet one of the youngest in Europe (Wizz Air, 2020A, p. 26). In addition, Wizz Air also has an order for 268 Airbus A320neo Family aircraft, which are more fuel efficient (Wizz Air, 2020A, p. 66). This means that Wizz Air's fleet will be even more fuel efficient in the future and at the same time the average age of the fleet will probably decrease, as new aircraft will be added to the fleet, while the older aircrafts, which are less fuel efficient, will most likely be phased out. It is therefore considered that Wizz Air's modern fleet is a valuable resource. Compared to Wizz Air's peer group, which was described in section 4.8, EasyJet also has a modern fleet consisting of Airbus A319, A320 and A321 aircraft and will have 100 A320neo aircraft in the fleet by the end of 2020 (Easyjet, 2020B).

Therefore, Wizz Air's modern fleet is therefore not considered to be a rare resource, as EasyJet also operates a modern fleet consisting of Airbus aircraft and will receive the same aircraft model that Wizz Air has ordered. Although airplanes are an expensive asset, the resource is not considered difficult to imitate, as it is easy to duplicate Wizz Air's fleet strategy. In relation to the utilization of the aircraft, Wizz Air's aircraft had a utilization rate of 12.02 hours per aircraft per day (Wizz Air, 2020A, p. 22). In contrast, EasyJet has a utilization rate of 10.9 hours per aircraft per day (Easyjet, 2019, p. 17), while Ryanair's utilization rate was 9.11 hours per aircraft per day (Ryanair, 2020C, p.

70). This suggest that Wizz Air has a good capability to utilize the resource and therefore the resource is considered to be organized. Hence, Wizz Air's modern fleet creates only a temporary competitive advantage.

5.4.2 Financial resources

In order to get through difficult and unforeseen times, such as the Covid-19 pandemic, it is important to have a strong balance sheet. Among European airlines, Wizz Air has the best liquidity,

as shown in figure 18. Compared to Wizz Air's peer group, the difference between Wizz Air and Ryanair is only 1%, while the difference between Wizz Air and EasyJet is much higher and amounts to 23%. This proves that Wizz Air has a valuable resource because Wizz Air can more easily overcome a crisis or unforeseen events because of their strong liquidity balance. During the Covid-19 pandemic, several airlines have applied for state aid in order to survive. This includes airlines such as Air France-KLM, British Airways and Lufthansa Group which have received state aid during the Covid-19 pandemic (Otley, 2020). This further indicates that Wizz Air's strong liquidity balance is a rare resource, as other airlines have applied for state aid, while Wizz Air on the other hand have enough free cash to continue operations without seeking state aid. However, the resource is not considered to be difficult to imitate since Wizz Air has raised £ 300 million in cash from the Bank of England during April 2020 (Wizz Air, 2020A, p. 9). Other airlines can, therefore, also apply for external financing like Wizz Air, which will strengthen the liquidity of the airline. While it may be costly to obtain external financing, which must be repaid at some point, external financing is still considered to be easily available in the market. In addition, it is assessed that Wizz Air's organization is able to utilize this resource and continues to do so, as evidenced shows by the extra cash addition to the liquidity balance. Therefore, Wizz Air's strong liquidity balance creates a competitive advantage.

Figure 18: European airlines with best liquidity as a share of 2019 revenue

Source: Own creation / (CAPA, 2020)

48% 47%

31% 29%

25% 22% 19%

14% 12%

7%

Wizz Air Ryanair

Finnair IAG easyJet

Air France-KLM

Turkish Airlines SAS Lufthansa Group

Norwegian

5.4.3 Human resources

Wizz Air has established a strong relationship with their employees and has not experienced any kind of industrial unrest among the employees (Wizz Air, 2020A, p. 28). In contrast, Ryanair has experienced industrial unrest over the years, as Ryanair has consistently refused to recognize labour unions representing employees (ETF/ITF, 2018, p. 3-9). The reason why Wizz Air has not experienced any industrial unrest is probably due to the fact that Wizz Air has invested many resources in training and motivating employees, which has also led to the establishment of a new training centre in Budapest, which has cost 30 million euros to build, where both pilots and up to 300 cabin crew members can be trained daily (Wizz Air, 2020D). In addition, Wizz Air puts great importance on the communication between senior management and the employees, where regular feedback and visits to different base locations ensure that employees remain motivated in their work (Wizz Air, 2020A, p. 28). The good relationship with employees is therefore a valuable resource, as Wizz Air so far has avoided industrial unrest by keeping employees motivated. However, there is no guarantee that the motivation will remain the same over time, which may mean that in the future there may be industrial unrest among the employees, which Wizz Air is also aware of and considers as a risk (Wizz Air, 2020A, p. 28). However, the resource is not considered to be rare, as an internal satisfaction survey at EasyJet shows that 7.9 out of 10 would recommend EasyJet as a workplace (Easyjet, 2020C). It is therefore not uncommon for other airlines to also have a good relationship with their employees. Wizz Air is considered to be organized, as Wizz Air has not yet experienced any industrial unrest. In addition to this, the good relationship with the employees can also contribute to an increased sale of onboard products as the employees may be motivated to achieve more sales. This can likewise be seen in figure 10 where ancillary revenue has been increasing, which may indicate that there has been an increase in sales of products on board. But whether it is due to the motivation of the employees or the purchasing behaviour of travellers is not known. It is therefore, considered that the good relationship with the employees only creates a temporary competitive advantage.

5.4.4 Intangibles

Many airlines have frequent flyer programs. Wizz Air, however, does not have a frequent flyer program, but instead a discount club, which is marketed as WIZZ Discount Club, where members get a € 10 discount on each flight as well as a € 5 discount on checked-in bags (Wizz Air, 2020E).

Unlike frequent flyer programs, where members have to fly several times a year to earn points and rise in status, members of the Wizz Discount Club get a discount immediately on their flight ticket or checked-in bags. Wizz Air’s discount club is therefore also different, as it costs € 29.99 per person for one year, while a group of up to 5 people can become a member for € 69.99 per year (Wizz Air, 2020E). This means that a solo traveller only needs to make two return trips before the membership is earned back, while a group of five only needs to make one return trip. Wizz Discount Club is therefore considered a valuable resource, as Wizz Air can create a loyalty to their customers and at the same time they can also provide an extra return through membership fees as well as increased sales of flights or checked-in bags. In contrast to Wizz Air's peer group, Ryanair or EasyJet, who do not have similar discount clubs like Wizz Air does. The same applies to other low-cost airlines in Europe. Wizz Discount Club is therefore considered to be unique as no other low-cost airlines in Europa have a similar discount club, which is why this particular resource is rare. It is however relatively easy to imitate Wizz Discount Club as it is an online platform that can be developed by other airlines. In addition to this, it is also estimated that the costs associated with launching a similar discount club is inexpensive, as IT development tasks can be outsourced to countries where wages are low. When questioning whether Wizz Air utilizes this resource, it is estimated that the resource is utilized and Wizz Air continues to do so, as figure 10 showed that ancillary revenue has increased from 35% in 2015 to 45% and among the income sources in ancillary revenue is the membership fee from Wizz Discount Club. Wizz Discount Club, therefore, provides a competitive advantage.

Wizz Air has created a strong brand in Central and Eastern Europe, as Wizz Air is the largest low-cost airline in this region and at the same time also one of the fastest growing airlines in Europe (Wizz Air, 2020A, p. 66). Wizz Air is, furthermore, the greenest airline in Europe, as Wizz Air's carbon emissions are the lowest among all airlines in Europe (Wizz Air, 2020A, p. 67). Because of that Wizz Air's strong brand is considered to be a valuable resource. Although there are many low cost airlines in Europe (ICAO, 2020), only a few low cost airlines is assessed to have such a strong brand as Wizz Air, Ryanair and EasyJet is considered to have. Therefore, the brand is considered a rare resource to have. In terms of analysing whether it is easy to imitate a strong brand, the estimate says that it can be costly and take many years to establish a strong brand. Due to that, Wizz Air's strong brand is

considered to be costly to imitate. It is estimated that Wizz Air's organization is able to exploit the strong brand as a resource and continues to do so. This is because Wizz Air has opened new bases in Western Europe and is set to open their first base in the Middle East. This shows that Wizz Air has used their strong brand to position themselves in new markets. It is therefore assumed that the brand creates a sustainable advantage.

5.4.5 Summary of the VRIO analysis

Overall, figure 19 reveals that Wizz Air's modern fleet and high utilization of the fleet only provide a temporary advantage, as other airlines also have a modern fleet. However, the strong balance sheet is considered to provide a competitive advantage as other airlines have applied for state aid in order to remain in business. Their strong ties with employees are also considered to only provide a temporary advantage, as unexpected conflicts may arise. Wizz Discount Club is something unique in the low-cost segment, which gives Wizz Air a competitive advantage over other low-cost airlines.

Finally, their strong brand name is considered to give Wizz Air a sustainable advantage, which has also led to Wizz Air expanding its operations to other continents.

Figure 19: Summary of the VRIO analysis

Source: Own creation