Ryanair failed to hedge its fuel requirement soon enough or spot a fall in consumer demand, but it is still in a good position to see out the storm, writes Ciarán Hancock
RYANAIR CHIEF executive Michael O'Leary put the "fasten seat belt" sign on yesterday, announcing that the airline could lose up to €60 million this year.
The oxygen masks have yet to drop and the crew - deputy chief executives Michael Cawley and Howard Millar - have been circulating among investors and media to assure them that, while the ride might be a bit bumpy for now, Ryanair will have a safe landing.
The problem for investors, and one of the reasons why the airline's share price nosedived by 22.5 per cent yesterday, is that just eight weeks ago Ryanair was guiding the market that it would break even this year.
That was based on fuel at $130 a barrel and a 5 per cent rise in its average fare. The airline is now guiding a 5 per cent reduction in its average fares and has started hedging its fuel costs at above $120 a barrel, something that O'Leary earlier this year said he would not do.
How could the outlook change so quickly? Is the great man losing his touch?
O'Leary cannot be blamed for failing to predict that oil would double in price over the past year. No economist or airline chief executive did.
However, he probably should have moved to hedge the airline's fuel requirement sooner, having said earlier this year that he would not hedge with oil above $100.
The other variable is demand. This is often difficult to predict in a cyclical industry such as aviation, particularly for a company like Ryanair, which is spread across so many markets. The airline said yesterday that the visibility for demand in the tricky winter season was foglike.
Ireland and Britain have always been the backbone of Ryanair's business, and both markets have boomed over the past 1½ decades.
Yesterday's guidance indicates a sharp deterioration in consumer demand on both sides of the Irish Sea for the winter season.
This makes sense at a time when people are being laid off across the board - even Ryanair axed staff this year at its Dublin call centre.
Should Ryanair have spotted this in advance of its full-year results announcement on June 3rd?
Possibly, but hindsight is 20/20 vision and O'Leary has enough credit in his locker to ride out that turbulence.
With €2.2 billion in the bank, Ryanair is in a good position financially to see out this storm in the industry.
O'Leary has already stated his belief that much airline blood will be spilled on the carpet over the next 12 to 18 months, and that Ryanair will mop up the mess.
For now, it's a case of remaining in your seats with your seat belt fastened, seat brought forward and tabletop clipped up.
