Low-cost carrier "Ryanair" has developed action scenarios in the event of a sharp deterioration in the aviation fuel market situation and an intensification of the conflict in the Middle East. This was announced by the company's CFO, Neil Sorahan, in an interview with "CNBC".
"Do we have plans for any kind of 'Armageddon' situation? Of course we do, but I don't think it will come to that. For now, we are executing our full summer schedule and we plan to fly on the full schedule throughout the winter as well," he stated.
According to him, however, not all market participants will be able to withstand the combination of high fuel costs and economic uncertainty. Sorahan warned that some of the weaker airlines in Europe might not survive the winter season. "We will likely see some of the carriers that had problems even before the war go bankrupt during the winter," the CFO pointed out.
Against this backdrop, "Ryanair" shares fell by 2.7% in early trading on Monday after the company presented its annual financial results. Since the beginning of the year, the carrier's stock has lost nearly 27.5% of its value.
The management of "Ryanair" explained that about 80% of the required fuel for the summer season is hedged at a level of $668 per metric ton. The company justifies this strategy with the uncertainty stemming from the conflict in the Middle East and the ongoing blockade of the Strait of Hormuz. The remaining 20% of volumes are not protected by long-term contracts, and their price has risen sharply due to market volatility.
Despite the tension, Sorahan assured that "Ryanair" does not plan to cancel flights and will stick to the announced schedule.
He compared the situation to that of the American airline "Spirit Airlines," which fell into serious financial difficulties following the sharp rise in aviation fuel prices, combined with accumulated debt and high operating costs.
"The oil market is currently extremely volatile. A few months ago, there were serious concerns about supplies, but now we are more confident that there will be no problems with availability during the summer," the "Ryanair" CFO commented.
According to him, Europe is gradually reducing its dependence on the Strait of Hormuz as a growing share of supplies comes from the US, Venezuela, Brazil, and other producers.
"Prices, however, are likely to remain high for longer, and this puts 'Ryanair' in a strong position due to our good fuel hedging strategy," added Sorahan.
The company's CEO, Michael O'Leary, also warned back in April that high aviation fuel prices could lead to "real bankruptcies" of airlines in Europe. "If the oil price stays around $150 a barrel in July, August, and September, we will see European airlines going bankrupt. In the medium term, this will likely be good for 'Ryanair's' business," O'Leary stated at the time.
Despite the unstable environment, the company reported strong results for the financial year ending in March. Net profit after taxes grew by about 40% and reached nearly 2.3 billion euros. Passenger traffic increased by 4% to 208.4 million passengers carried. At the same time, total revenue decreased by 11% to 15.54 billion euros.
"Ryanair" notes that bookings for the summer season remain stable, although more customers are choosing to buy tickets at the last minute – a trend that makes price level forecasting difficult.
Analysts from "Citi" commented that at the start of the summer, the airline was forced to lower prices to fill seats, but in the second quarter, fares are likely to remain close to last year's levels.
Sorahan emphasized that for now, the introduction of a separate fuel surcharge is not being considered, but warned that this does not mean there won't be a price increase for tickets. "We haven't promised that there won't be a price increase. We set prices so that the planes are full, and ultimately, it is the consumers who determine what the price will be," he said. According to him, every night about 700 million people search and book flights through the "Ryanair" platform.
Against the backdrop of fluctuations in the aviation sector and uncertain fuel prices, more travelers in Europe and the UK are planning to use trains or choose shorter flights. It is expected that destinations in Southern Europe will be the most preferred this summer.