The airline industry is heading for rising fuel costs as crude oil prices surge, and the weakest of the European airlines may not make it through the winter, Michael O’Leary, chief executive at Europe’s largest budget carrier Ryanair, said on Monday.
“Spot prices close to $80 a barrel are going to lead to a significant shakeout in the industry as early as this winter,” O’Leary told Bloomberg Television, after Ryanair reported earlier today a 10-percent increase in its FY 2017/2018 profit.
“Some of those loss-making airlines who couldn’t make money when oil was at $40 a barrel certainly can’t survive,” O’Leary told Bloomberg.
Ryanair said in its FY 2018 release on Monday that “fuel will be a major cost headwind for the next 24 months.”
Ryanair is currently 90-percent hedged for FY19 at around US$58 per barrel compared to the spot price of nearly US$80 a barrel.
“While US Shale production remains strong, world demand for oil is growing, and a number of short term political factors in Venezuela, Libya and Iran, suggests that prices will continue to be elevated for the coming year. Air fares tend to follow oil prices (as they have downwards over the last 3 years) but with a lag of up to 12 months before higher oil prices feed through to higher air fares,” said Ryanair. The low-cost airline also noted that the European airline industry is consolidating.
“Oil is going to be a driver but I think it will be a driver of change to the competition landscape in Europe. Some of those airlines who couldn’t make money when oil was at $40 a barrel last year, I don’t think will survive this winter if oil remains up at these elevated levels,” Ryanair’s chief executive said.
According to Platts data and the International Air Transport Association (IATA), as of May 11, 2018, jet fuel prices globally were 54.2 percent higher than at the same time last year, 5.4 percent higher compared to a month ago, and 3.7 percent higher than the previous week.
By Tsvetana Paraskova for Oilprice.com
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