Fares on Ryanair flights will be hiked by approximately 5% in the next fiscal year if oil remains at $130 a barrel just so the airline can break even ” it would lose ”125m ($195m) if it didn”t raise them.
It will also ground up to 20 aircraft this winter ” around 10% of the fleet - at Stansted and Dublin airports where airport charges are highest while also cutting costs through redundancies, among other measures.
The carrier did see a 20% boost to its underlying pre tax profits in the financial year to 31 March ” to”481m - but that was when it had much of its oil hedged at $65 a barrel and speaking to the media today (3 June) CEO Michael O”Leary admitted bad judgement calls have led to Ryanair paying full whack for its fuel for the next year.
”We keep expecting oil prices to fall ” when it went to $80 a barrel we waited until it dropped down to $70, but it went to $90,” said O”Leary. ”We kept calling it wrong for about the last 12 months, and we”re presently unhedged and facing $130 a barrel for the next year.
”We can see average fares rising by about 5% - up probably around ”2 per passenger.”
But O”Leary went on to claim that Ryanair ” which also saw 20% traffic growth last year - will benefit from high oil prices and the downturn in the longer term as more airlines go bust, and savagely attacked others ” notably British Airways (BA) ” for raising fuel surcharges.
”The price gap between us and BA is getting wider ” that”s what drives our growth. In response to [the theory] that high oil prices means the end of low fare air travel ” it doesn”t, it means low fare air travel is going to do even better, it just means the end of high fare airlines,” he said. ”This is why we”ve seen in the last couple of months the tragic demise of these transatlantic business class-only airlines, and it”ll be followed by more bankruptcies this summer.
”Frankly, I think it will be good for our business because it forces competitors to raise fares and fuel surcharges and BA are certainly leading the charge with unjustified rises ” given the airline”s already confirmed it is 70% hedged for the next 12 months, the fuel surcharges are just a scam to take more money out of the travelling public. But what they”re doing is sending more of the travelling public in Ryanair”s direction.”
In a downturn, O”Leary said consumers will become more price sensitive and pointed out Ryanair is already seeing slightly higher advanced bookings now than this time last year.
Corporate travellers will also be driven into its arms, he added: ”There”s no doubt in our mind that our competitors” fuel surcharges are driving business traffic in our direction. The general analysis is that if oil stays at $130 people are going to stop flying ” but they won”t. They won”t stop flying for work, or to visit friends and relatives.”
There will undoubtedly be airline bankruptcies here in the UK and Europe if oil stays at $130 a barrel, he predicted, but Ryanair is well placed due to its lower cost base and substantial cash reserves.
O”Leary said ”irrational exuberance in the speculative market” was driving up the price of oil, with ”no fundamental supply and demand issues” causing it, but said it will not last ” ”there will be a major recession and when that happens demand for oil falls.”