The EconomistSeptember 5th 2020 Business 532
1fleet, less than a third the size of Ryanair’s
and half of EasyJet’s, meant it could keep a
bigger share of its aircraft in the air.
Wizz Air’s resilience is not all down to
good fortune. Mr Varadi’s focus on costs
helped, too. He claims Wizz Air’s are the
lowest in the business, thanks mainly to
the industry’s largest fleet of super-effi-
cient Airbus a321s (though he got lucky
here, too, by not picking Boeing’s rival 737
max jets, the grounding of which after two
fatal crashes has delayed deliveries to big
buyers like Ryanair). Using the biggest ver-
sion of the single-aisle workhorse has
helped to spread expenses among more
passengers. One estimate put Wizz Air’s
unit costs at half those of EasyJet, an airline
that increasingly resembles the legacy car-
riers it once sought to subvert. And Mr Va-
radi has pulled this off without irritating
passengers or gaining a Ryanair-like repu-
tation for stinginess.
Now, thanks to mass lay-offs of pilots,
cabin crew and other staff, labour costs are
tumbling. Empty airports are wooing carri-
ers with cheap landing slots and discounts
on other charges. That has allowed Wizz
Air to set up ten new bases in the past three
months, including at London’s Gatwick
airport, as well as in Germany, Albania and
Russia. Plans to serve the Persian Gulf in a
joint venture with Abu Dhabi’s sovereign-
wealth fund remain on track.
Things could still go wrong. On Septem-
ber 1st, as European countries reimposed
travel restrictions, Wizz Air tempered its
plans to return to 80% capacity next quar-
ter. It is now aiming for 60%, still better
than 45% or so for most European rivals. Its
share price is below its peak in mid-Febru-
ary, but back where it was at the start of the
year (see chart). Mr Varadi says Wizz Air’s
€1.5bn in cash would last 20 months even if
all its planes stop flying. He relishes the
chance to “sort winners from losers”. No
points for guessing which group he thinks
his firm belongs to. 7Regaining altitude
Share prices, January 1st 2020=100Source:DatastreamfromRefinitiv120100806040200
J ASJMAMFJEasyJetRyanairWizzAirW
hen abe shinzo became Japan’s
prime minister for a second time in
2012, relations with China were on the
skids. Tensions over disputed islands
brought the two countries to the brink of
conflict. Japanese car dealerships in China
were set ablaze. Protests at a Panasonic fac-
tory turned violent.
After that, tempers cooled and relations
warmed. Mr Abe had planned to host Xi
Jinping for a state visit in Tokyo this spring,
the first by a Chinese leader since 2008. Ja-
pan Inc, too, has been dining out on the
bonhomie. Annual trade between China
and Japan, the world’s second- and third-
biggest economies, amounts to more than
$300bn. Japanese firms accumulated over
$130bn in assets in China. The flow of Japa-
nese foreign direct investment there hit an
all-time high of $14.4bn last year.
According to Morgan Stanley, an invest-
ment bank, listed Japanese firms derived
only 4% of revenues from China. But 26%
of their profits were tied to China through
suppliers or customers, more than de-
pended on America, calculates Jesper Koll,
a Tokyo-based economist. He reckons this
profit share shot up to 63% in the second
quarter, as the Chinese economy recovered
faster than others from covid-19. Now the mood seems once again to be
souring. Covid-19 put paid to Mr Xi’s visit.
His crackdown on democracy in Hong
Kong and the economic cold war between
Beijing and Washington have led senior
Japanese officials to speak of risks rather
than opportunities in China. Earlier this
year Mr Abe’s government imposed new re-
strictions on foreign investment to protect
certain industries, battered by covid-19,
from Chinese bargain-hunters. The pan-
demic and the spectre of further American
sanctions against Chinese companies such
as Huawei, a telecoms-equipment giant,
are making Japanese companies think
about the stability of their supply chains,
not just efficiency, says Ke Long of the To-
kyo Foundation for Policy Research, a
think-tank. Mr Abe’s sudden resignation
on August 28th over ill health has added to
the uncertainty (see Asia section).
Closer inspection reveals a more nu-
anced picture, however. One source close
to the government says its aim is to focus
on “several strategic choke-points” in Chi-
na (such as medical supplies), while “keep-
ing many areas open for commercial activi-
ty”. Not so much a great decoupling, then,
as a quiet rebalancing.
Mr Abe’s ¥244bn ($2.2bn) programme
to induce Japanese firms to diversify their
supply chains away from China is a case in
point. In July 57 companies, including Iris
Ohyama, a big plastics producer, and Sharp,
a maker of electronics, received a com-
bined ¥57bn to invest in production at
home; others got help to build factories in
South-East Asia. But of the 87 winning pro-
jects, 60 will be producing masks, disinfec-
tants, drugs or other medical supplies.TOKYO
Japan Inc is caught in the rift between
America and ChinaJapanese businessRebalancing act
SafeashousesSources:DatastreamfromRefinitiv;BloombergMarketcapitalisation
150100500
20181614122010Marubeni
SumitomoMitsuiMitsubishiItochuFinancials
YearendingMarch 2020Mitsubishi 132.9Itochu 98.8Mitsui 61.9Marubeni 61.4Sumitomo 47.7Japan, selected trading companies, $bnOperating
Company Revenues profit/loss
3.03.51.7-1.21.4Warren Buffett famously likes his businesses simple to understand and transparent.
Why, then, has his conglomerate, Berkshire Hathaway, poured $6bn into 5% stakes in
Japan’s five biggest trading houses? Mitsubishi, Itochu, Mitsui, Marubeni and Sumitomo
do not appear to meet either criterion. They run a bewildering array of subsidiaries in
most sectors of the economy. In that they bear a passing resemblance to Berkshire itself.
Prehaps more important, though, they satisfied two other Buffett must-haves: their
shares, dented by covid-19, looked cheap, and they pay reliable dividends.Berkshire Hathaway’s Japanese bet