Ryanair expects European airfares to rise by as much as 20% next year as fuel hedges expire and oil prices remain elevated, chief executive Michael O'Leary told CNBC on Monday. The budget carrier reported a 15% fall in profit to 2.15 billion euros in the first fiscal half of the year, as the price of its 20% unhedged jet fuel doubled.
O'Leary said the market and customers have been insulated for the past 12 months, but those hedges are rolling off. With no resolution in the Middle East and jet oil trading at $170 a barrel, the airline faces a very significant cost cliff next year. He believes airfares will rise across Europe by 10% or possibly even 20%.
Ryanair said it does not expect an increase in short-haul airfares to fully offset an estimated 2 billion euro increase in fuel charges next year. The carrier is launching a cost review that will include lowering crew rations, a potential temporary pay freeze and the use of AI to drive further efficiencies.
The airline hedged 80% of its jet fuel at $67 per barrel for the year, giving it an advantage over competitors as earnings remained insulated from volatile oil prices. The carrier has hedged at least 25% of its 2028 jet fuel prices at $95 per barrel.
Ryanair cut its full-year traffic target in September from 216 million passengers to 214 million passengers to reduce its exposure to unhedged fuel during the winter. O'Leary said the airline is cutting winter capacity for the first time in many years, as it makes no sense to grow capacity whilst buying unhedged oil at $170 a barrel. Winter traffic between November and March is expected to remain broadly flat year-on-year.
Ryanair held 2.6 billion euros in cash as of 30 September, even after repaying 1.3 billion euros in debt. O'Leary said the airline has effectively zero debt and 650 aircraft on the balance sheet, making it significantly cash positive. The challenge facing all airlines is the volatility in oil prices, lack of hedging and higher financing costs.
Ryanair's Irish-listed shares initially edged higher in early Monday trading before paring gains to trade below the flatline. The stock has fallen over 22% this year. Market analyst Adam Vetesse at eToro said investors appear to have already priced in the hit from unhedged fuel and softer summer fares, leaving room for relief that the quarter landed exactly where consensus had predicted.
Why it matters for wealth
Higher airfares could increase travel costs for frequent flyers and those with second homes in Europe. The fuel price volatility affecting Ryanair also impacts legacy carriers, which may pass on similar cost increases across business and premium cabins.
Source: CNBC
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