Michael O’Leary hedges €99m Ryanair bonus plan with extension talks

Ryanair boss Michael O’Leary confirmed this week that he has hedged half of the airline’s oil needs for its next financial year to March 2024 — despite heightened volatility in the energy markets — at about $92 (€92) a barrel, around where it is currently trading.

It compares to about 80 per cent of the carrier’s fuel requirements for the current financial year being locked in at $63 per barrel — leaving it way in advance of most European peers, according to analysts.

The bet — by not forward buying more of next year’s fuel — is that oil prices will drop by the middle of next year, either as a result an end to Ukraine war or, much more likely, a recession.

Even in the event of an outright European downturn — as predicted by a daily-expanding chorus of economists — O’Leary insisted to reporters in a briefing on Thursday (after they were locked out of the group’s annual general meeting) that Ryanair will “still grow strongly” in its current year as under-pressure consumers switch to low-cost carriers.

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O’Leary’s existing 3.9 per cent stake in Ryanair is currently valued at about €531 million

The era of the €9.99 ticket may be over for now. But Ryanair only expects that its fares will rise marginally next year from an average of about €40 currently.

The fact that Ryanair’s forward bookings for Halloween and Christmas are reported to be stronger than they were in 2019, before the Covid-19 pandemic, appears positive, especially when households are grappling with soaring energy, food and other non-discretionary bills. But it could also, of course, be down to travellers buying tickets now, in advance of expected price increases.

While Ryanair was forced on Friday to cancel 420 flights, affecting 80,00 passengers, amid an air traffic control strike in France, the carrier had a strong summer, put 15 per cent more flights in the skies during the peak months.

This took advantage of how the likes of Alitalia, Portugal’s TAP and Norwegian airlines downsized during the pandemic and companies from British Airways to Lufthansa were forced to cut flight numbers during the summer because of staffing issues — at a time the industry should have been capitalising on an unleashing of pent-up demand.

While its European peers laid off thousands of employees during the pandemic, Ryanair kept staff on, albeit at reduced pay, during the height of travel restrictions.

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The company, which racked up €1.37 billion of net losses over the past two years, is expected to swing back to a €1.13 billion profit in its current financial year, according to analysts at Cantor Fitzgerald.

O’Leary signed a five-year contract in early 2019 that included options for him to buy 10 million Ryanair shares at €11.12 each if its net profit topped €2 billion in any of the years, or if its share price exceeded €21 for a period of 28 days between April of this year and March 2024.

The most generous incentive scheme for an Irish publicly-quoted company at the moment would be worth €99 million in the event that it was triggered by a €21 share price.

The stock options scheme caused considerable unrest among shareholders when it was first unveiled, with 49.5 per cent of investors that voted in that year’s annual general meeting revolting against the remuneration report.

The company’s stock is currently hovering at a little over €12, having fallen 21 per cent so far this year.

Ryanair promised at the time to “consult” with shareholders and report back on how it would “adapt its decision-making to reflect their advice and input”. It resulted, of course, in no tweaks to the plan — even if the pandemic and Ukraine war have conspired against it.

The company’s stock is currently hovering at a little over €12, having fallen 21 per cent so far this year, and the market consensus is that Ryanair will fall well short of the €2 billion earnings goal by the time the incentive plan expires.

“They remain very challenging targets,” O’Leary said on Thursday. “We’re certainly not going to get there this year. Who knows what happens next year or the year after. We’re all working hard here to boost profitability and to boost the share price, but it’s very difficult when you have two black swan events — the Covid pandemic in the last two years ... and the Russian invasion of Ukraine.”

O’Leary’s existing 3.9 per cent stake in Ryanair is currently valued at about €531 million. If oil prices were to fall to $50 a barrel, however, he suggested the airline could reach the bonus-triggering profit target.

But O’Leary is hedging his position by entering, as he revealed on Thursday, into talks with the company’s chairman, former Kerry Group boss Stan McCarthy, about extending his current contract out to 2028.

There’s little prospect of the CEO of 28 years, despite regularly suggesting in the Noughties that he’d retire “in two years”, staying in the cockpit for anything less than pushing out the timelines on his current bonus plan.