Ryanair warns ‘weak’ airlines will go bust this year as fuel costs soar
Ryanair’s finance boss has said he “wouldn’t be surprised” if some of the airline’s “weaker” rivals went bust later this year, as the Iran war spikes fuel costs.
The Dublin-based budget carrier has insisted it is “confident” despite warnings of a jet fuel crisis, but US carrier Spirit Airlines shut down last month, and Ryanair said more could follow.
In a pre-recorded Q&A, chief financial officer Neil Sorahan said on Monday: “The recent spike in fuel is putting a lot of weaker carriers into a very precarious situation. We’ve seen in the US Spirit go out of business in the recent past.
“I wouldn’t be surprised to see some failures over this winter as the high fuel costs hit our unhedged and unprofitable competitors in Europe.”
Ryanair ‘widening advantage’ over rivals
Ryanair has claimed it is better prepared for the looming jet fuel crisis than its European competitors, as the airline expects to “widen the cost advantage” over its rivals.
The blockage to the Strait of Hormuz during the Iran war has left global jet fuel shipments at their lowest level on record, and thousands of summer flights could be cancelled.
But Ryanair said fixed-term contracts on most of its fuel requirements and its “effectively debt free” position leaves it best positioned to weather this storm.
“This financial strength further widens the cost gap between Ryanair and our competitors, many of whom are exposed to expensive (long-term) finance, rising aircraft lease costs and unhedged jet-fuel,” the firm said in its accounts.
Ryanair said 80 per cent of its jet fuel demands for the coming year are fixed at $67 per barrel, while current market prices have soared above $150 per barrel.
Ryanair profit up 36 per cent
Other airline bosses have warned that this spike in jet fuel prices is hitting airlines worse than the Covid-19 pandemic, but the Irish airline insisted that Europe “remains well supplied” by routes through West Africa, the Americas and Norway.
But the conflict leaves the industry guessing, Ryanair chief executive Michael O’Leary said: “The conflict in the Middle East has created economic uncertainty and we still don’t know when the Strait of Hormuz will reopen.”
The Irish airline, which is listed on the Euronext Dublin, saw revenue jump 11 per cent in the year to March, to €14.5bn (£12.6bn).
Passenger numbers grew by four per cent to 208m, while pre-tax profit soared by 36 per cent to €2.4bn.
Ryanair expects passenger numbers to jump again in the coming year – by four per cent to 216m – but said holidaymakers are now booking more last-minute as a result of Iran war disruption to travel routes.
€85m hit for ‘baseless’ Italy fine
In December, the airline was hit with a €256m fine by Italy’s competition watchdog over its allegedly “abusive” use of its dominant market position to limit sales using online travel agents.
On Monday, Ryanair said its lawyers are “confident” that they will overturn the “baseless” charge on appeal.
But the firm included an €85m charge on its balance sheet as a provision for the fine, which accounts for around a third of its value.
The airline said it expects EU environment taxes to soar by €300m this year to €1.4bn in total. The levies make air travel within the bloc “even less competitive,” Ryanair said.
O’Leary has come to blows with the boss of JD Wetherspoon in recent weeks over whether airports should serve early morning pre-flight pints.
The Ryanair boss claimed airports are “profiteering” from enabling drunken behaviour, but pub chief Tim Martin came to the defence of his pubs, which have a large presence at airports.