It might have taken four years of self-reflection, but after fending off a backlash over pilot fatigue and watching his group’s share price approach all-time lows, the CEO of budget airline Wizz Air is starting to question whether sacking a swath of employees was a good idea.
Wizz Air decided to lay off 1,000 crew, equivalent to 20% of its workforce, in April 2020 as COVID-19 restrictions effectively grounded airlines.
The move was seen as vital to ensure the company’s survival. But four years on, with its share price no better off than when layoffs were announced, CEO Jozsef Váradi admits the cull “kind of dented the morale of the company.”
“We looked at it as an economic issue, or a financial issue,” Váradi told the Financial Times. “And I don’t think we gave sufficient credit for the morale impact of it. So that’s clear early learning, we have not fallen into the trap again.”
Váradi told the paper he had now learned the importance of “people, loyalty, and experience” in the wake of the layoffs.
Pilot fatigue
Wizz Air crew members could be forgiven for taking Váradi’s apparent epiphany on worker morale with a pinch of salt, given his past comments on working conditions.
In 2022, the Hungarian boss faced a backlash for his response to rising instances of flight cancelations driven by pilot fatigue, as those who avoided layoffs were forced to take on more flights.
“We cannot run this business when every fifth person of a base reports sickness, because the person is fatigued,” Váradi said at the time, citing compensation fees paid out for canceled flights. “Sometimes it is required to take the extra mile. The damage is huge when we are canceling the flight, it’s huge.”
At the time, the European Cockpit Association, the main body representing the interests of 40,000 pilots in 33 countries, said telling tired pilots to go the extra mile was “like handing the car keys to a drunk driver.”
Váradi’s more recent comments come as Wizz Air battles what he described as “too many black swans,” negative events that are very hard to predict.
The airline was disproportionately hit by Russia’s invasion of Ukraine and the war in Gaza. Wizz Air flew to Ukraine and Israel more than competitors prior to the conflicts.
It also felt major impacts from a recall by Airbus engine supplier Pratt & Whitney last year, which added to the airline’s cancelation woes as it was forced to ground at least 10% of its planes.
In January, Wizz Air was ordered by regulator the Civil Aviation Authority (CAA) to pay £1.2 million ($1.5 million) to 6,000 passengers who were initially refused compensation by the airline.
Those operational hits, including the impact of layoffs, are likely to hit Váradi’s own pocket.
Similar to rival Ryanair boss Michael O’Leary, the Wizz Air CEO has a pay incentive tied to the group’s share price, putting him in line for a £100 million ($125 million) bonus if its stock rises to £120 ($150).
But with the group’s share price currently languishing at £23 ($28.85), the Wizz Air boss will need several reversals of his “black swan” moments to secure his nine-figure payday before the 2028 deadline.
A representative for Wizz Air didn’t immediately respond to a request for comment.
Layoffs bite back
Mass redundancies have hardly been rare since the COVID-19 pandemic, as companies seek to cut costs. Data from tracking site layoffs.fyi suggests 80,000 tech workers have been laid off already this year, for example, after a quarter of a million faced the chop through 2023.
However, while the benefits are often felt immediately in share price appreciation, CEOs like Váradi are discovering that “efficiency drives” often come at a longer-term cost to the company’s performance. And he’s not alone.
Speaking during Spotify’s Q1 earnings call in April, CEO Daniel Ek admitted the streaming giant’s decision to lay off 1,500 employees back in December had a bigger impact on day-to-day operations than he had anticipated.
Spotify didn’t manage to reach its profitability and monthly active users targets for the first quarter of the year, and Ek cited that operational hit as one of the reasons it failed to do so.
“It took us some time to find our footing, but more than four months into this transition, I think we’re back on track and I expect to continue improving on our execution throughout the year getting us to an even better place than we’ve ever been,” Ek said.
