Travellers face rising air fares, O’Leary predicts

Travellers face increased air fares as airlines cut back on seats while fuel prices rise, Ryanair Holdings chief executive Michael O’Leary predicts.

Ryanair earned €170 million profit in the three months to June 30th, the first quarter of its financial year, according to figures published on Monday. Speaking to stockbroker analysts after Ryanair released the results, Mr O’Leary said, assuming no further impact from Covid-19 or the war in Ukraine, European air fares look poised to increase.

“There are going to be significant capacity cuts by a lot of airlines,” he forecast.

Mr O’Leary argued that as rivals including EasyJet and Wizz Air were less well hedged than Ryanair against rising fuel, “they will blow their brains out” if they do not retrench. Consequently, fewer seats allied to rising fuel costs will, in the medium term, push up in air fares he told analysts. “Particularly when a lot of the capacity that’s going to be taken out is never going to return,” he added.

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He maintained that the Irish giant was best-placed to cash in as other airlines rowed back. Ryanair has grown its share of most markets including Italy, Portugal, Austria and Hungary, where the airline said it has overtaken local player Wizz Air. It has 56 per cent of the Irish market.

Ryanair increased the number of seats on sale this summer by 15 per cent over pre-pandemic levels, and intends cutting this back to about 9 or 10 per cent over pre-Covid capacity in the winter.

However, Mr O’Leary suggested that if the airline sees the right opportunities, it may offer more capacity than this.

The airline, Europe’s biggest, said it flew 45.5 million passengers in its first quarter. This was more than five times the 8.1 million people it carried during the same period last year and 9 per cent more than the comparable pre-Covid figure.

Profit after tax hit €170 million in its first quarter, turning around a €273 million loss in the same period in 2021 when widespread Covid curbs hindered flying. The figure trailed the €243 million that Ryanair earned in the three months to June 30th, 2019, the year before Covid, by about 30 per cent.

Mr O’Leary noted that Russia’s invasion of Ukraine hit bookings over Easter while fares were 4 per cent down on the same quarter pre-Covid.

Ryanair’s first quarter fuel bill was €1 billion, almost six times what it paid during the same period last year, when flying was heavily restricted.

The airline has hedged 80 per cent of its fuel needs for the current financial year, which ends on March 31st, but its chief executive said high oil costs would add to the bill for the remaining 20 per cent.

Ryanair has agreed deals with most of its pilots and cabin crew around Europe to immediately restore half the 20 per cent pay cuts they accepted in 2020. Mr O’Leary said it intended restoring the balance in April 2023, a year earlier than planned, if profits are “north of €1 billion”. The airline boss stressed that returning to a level of profitability that would allow it fully restore pay next year was a priority. Irish and Belgian pilots’ unions have yet to agree pay restoration deals.

Unlike many rivals, Ryanair has cancelled few flights this summer but its chief executive blamed “unprecedented air traffic control and airport handling delays” for disrupting schedules and passengers.

However, he said Ryanair remained on track to operate almost 100 per cent of its schedule and carry 165 million passengers in its current financial year.

Ryanair did not guide on likely full-year profits as late bookings, lurking Covid, volatile oil and geopolitical risk make forecasts difficult.