Ryanair's pre-tax profit plummeted by 36% to €593 million in the first quarter of this year, as soaring jet fuel costs driven by the Iran conflict began to bite. The budget carrier's operating costs surged 11% to €3.8 billion in the three months to June, after the cost of the 20% of its jet fuel that remained unhedged more than doubled to $150 per barrel.
Fuel Hedging Strategy Shields Part of Operations
Ryanair had previously shielded itself from escalating fuel prices by locking in energy costs through hedged contracts. The carrier revealed that 80% of its fuel requirements for the current financial year are locked in at $67 per barrel. However, Ryanair's energy costs are set to rise sharply next year, with 15% of its requirement for the 2028 financial year hedged at $85 per barrel.
Despite the profit drop, Ryanair said its "conservative" jet fuel hedging strategy still leaves it better positioned than its European rivals. Chief executive Michael O'Leary told investors that fares were subdued at the start of this year because "the Middle East conflict led to consumer hesitancy, concerns about EU jet-fuel shortages, economic uncertainty and later bookings."
Passenger Numbers Rise but Revenue Falls
Passenger numbers climbed six percent in the first quarter of this year, yet reduced ticket prices meant the airline's revenue dipped by one percent to €4.3 billion over the period. Ryanair announced in May that it would slash some of its fares to drive up passenger volumes and counter the weakened demand brought about by the Middle East conflict.
"Despite a recent, slight, uptick in volumes, and less price stimulation, second-quarter pricing is trending modestly down year-on-year and the final first-half fare outcome is heavily dependent on the strength of close-in bookings in August and September," O'Leary added.
Market Reaction and Analyst Views
Stockbroker Panmure Liberum suggested Ryanair's update would be seen as "slightly disappointing" by the market, after the firm's profits fell short of analyst forecasts. Airlines have warned that concerns over potential travel disruption stemming from the Iran conflict are prompting holidaymakers to leave bookings to the last minute, making it increasingly difficult for carriers to plan effectively.
CEO Contract Extension
In June, Ryanair handed O'Leary a six-year extension as part of a new contract which could see him given 10 million additional shares. Stan McCarthy, Ryanair chairman, said he is "pleased to report" that O'Leary has agreed to extending his leadership "for the benefit of all shareholders." O'Leary, renowned for his larger-than-life personality and forthright manner, is amongst Ireland's most wealthy businessmen.
