Fallout from the three-month-old conflict in the Middle East has made Irish and European consumers cautious about their summer travel plans, Ryanair says.
Europe’s biggest airline believes it is still on track to beat its last financial year’s record 208.4 million passengers, but is discounting summer fares to maintain demand, says chief executive, Michael O’Leary.
While people still intend travelling, reports of cancellations sparked by high fuel costs, along with a general desire “to see how things play out”, have made them more cautious.
Consequently, they are booking flights closer to their intended departure dates than usual, O’Leary told industry analysts on Monday.
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Ryanair responded to this by discounting longer-term fares “to keep the demand curve going” he confirmed.
[ Air fares slide on fears over inflation and jet fuel supplies, says RyanairOpens in new window ]
This means that, for now at least, average fares are dipping below what holidaymakers paid last year.
The airline had expected to charge higher fares than this time last year as it moved into the peak summer travel season.
Despite consumer caution, Ryanair maintains that underlying demand is “robust”. Europeans will travel this summer but uncertainty elsewhere in the world means they are most likely to holiday in Europe, O’Leary argued.
At least some of that uncertainty stems from fears that a shortage of jet fuel will force airlines to axe services.
But the risk of that is now “almost zero”, according to Ryanair. Its chief executive acknowledged that there had been genuine fears of a shortage two months ago.
Around 20 per cent of European jet fuel needs came through Hormuz, but the region is now getting extra deliveries from the Americas, west Africa and Norway.
“The challenge now is price,” O’Leary confirmed. Ryanair has hedged 80 per cent of what it needs for the current financial year, which ends on March 31st 2027, at $67 a-barrel, not much more than half what it trades at now.
It must pay higher prices for the remaining 20 per cent. In a “worst case” scenario, where Hormuz remains shut until next March, the airline calculates that costs will rise 5 per cent while fares will fall. That would result in lower profits.
That scenario could force some of its weaker rivals out of business, O’Leary said, naming Air Baltic and Wizz Air as likely casualties.
Ryanair’s deep pockets mean it is the best placed airline in Europe to ride out the current storm.
The group has €2.1 billion net cash and will be debt-free as of next week, when it repays a €1.2 billion bond.
Whatever the number of airlines left in Europe after the current crisis “Ryanair will be one of them”, according to O’Leary. That seems a safe bet.
