Shares in airline company Wizz Air (LSE: WIZZ) have fallen by 2% despite the company releasing a positive trading update. In fact, following its third quarter it now expects underlying net profit for the full year to be higher than previous guidance, with a figure of between €200m and €210m being forecast versus previous guidance of €190m to €200m.
Encouragingly, Wizz Air reported a significant rise in passenger numbers, with the total increasing from 3.8m in the third quarter of the previous year to 4.7m this time. Part of the reason for this was an increasing load factor, with it standing at 85.7% versus 84.6% in the same quarter last year. And with fuel costs also tumbling, the long-term outlook for the business is relatively bright.
Of course, the airline industry remains hugely competitive and this level of competition could increase when oil eventually begins to rise in price. Companies such as Wizz Air may not be able to pass on all of the additional costs to consumers and with the outlook for the global economy being uncertain, price may become an increasingly important factor moving forward.
However, with Wizz Air trading on a price-to-earnings growth (PEG) ratio of just 0.8, its risk/reward ratio seems to be highly appealing at the present time.
Rising to the challenge
Also experiencing higher competition are Vodafone (LSE: VOD) and Talktalk (LSE: TALK). As more media/telecoms companies are moving into the quad play space (where one provider offers landline, pay TV, broadband and mobile services), their market share is likely to come under severe pressure.
In the case of Vodafone, it’s responding by investing billions in its infrastructure across Europe to ensure that its mobile offering remains highly competitive in terms of the availability and speed of its service. Furthermore, Vodafone is diversifying into pay TV having already launched a broadband service in the UK. And with the company also having bought up multiple assets in Europe, it appears to be in a stronger position now than in recent years. With Vodafone expected to increase its bottom line by 19% next year, its share price performance could be strong.
Meanwhile, Talktalk’s strategy has been hurt by the hacking incident last year, with its reputation among customers (and potential customers) likely to have been damaged. This is likely to hurt its sales strategy at a time when competition in the quad play space is increasing. Therefore, it would be of little surprise for the company’s share price to come under a degree of pressure in the short-to-medium term.
However, with Talktalk trading on a PEG ratio of only 0.3, this risk seems to have been priced-in by the market. As such, buying Talktalk for the long haul appears to be a sound move.