Ryanair has issued a stark warning that escalating jet fuel prices, exacerbated by the ongoing conflict in the Middle East, could push some of its European competitors into insolvency. The budget carrier has taken emergency measures to mitigate the financial impact, including scaling back its passenger targets for the current year from 216 million to 214 million.
The Dublin-based airline revealed it has secured fixed-price contracts covering 80 per cent of its fuel requirements for the year ahead. However, it has also chosen to cancel certain flights to reduce the volume of fuel it must purchase at prevailing market rates, which have spiked due to the closure of the Strait of Hormuz.
Winter losses expected to ease by up to €100m
The reduced flight schedule is projected to ease Ryanair's winter losses by between €70 million and €100 million. Despite the cutbacks, the carrier remains on track to grow its summer passenger numbers by more than five per cent to 145 million this year.
Ryanair cautioned that several of its European competitors face greater exposure to the surging jet fuel costs. "If high oil prices continue through to [next summer], Ryanair believes short haul airfares in Europe will increase materially to reflect higher oil prices," the firm stated. "Some less well-hedged competitors will struggle to maintain capacity or even survive this coming winter season."
Fuel costs double for unhedged portion
In July, Ryanair disclosed that the cost of the 20 per cent of its fuel requirements that were not fixed-price had more than doubled at the start of this year, reaching $150 per barrel. Consequently, the carrier's operating costs surged 11 per cent to €3.8 billion in the three months to June, while its pre-tax profit plummeted 36 per cent to €593 million.
The airline, which is listed in both Dublin and New York, announced in May that it would slash some of its fares to drive up passenger volumes and counter the softening demand triggered by the Middle East conflict.
Industry-wide impact of the Iran war
Ryanair is far from alone in feeling the pinch from the Iran war. Tourism giant Tui swung to a €17 million loss in the six months to June, attributing the shortfall to rising fuel costs and subdued travel demand. Easyjet absorbed a £200 million blow to its profits in the three months to June, as fuel costs per passenger rocketed by £100 million, or 13 per cent.
The warning from Ryanair underscores the broader financial strain across the European aviation sector, with carriers heavily reliant on hedging strategies to navigate the volatile fuel market. As the conflict persists, the industry faces a challenging winter season ahead.
