Dearer oil will hit Irish firms hard
LAST week oil prices hit $98 a barrel, their highest level since the previous oil-price bubble burst in mid-2008. Higher oil prices will, if sustained, seriously impact on the bottom lines of several major Irish companies.
First in the firing line of higher oil prices will be the two Irish airlines, Aer Lingus and Ryanair. In 2009, the total Aer Lingus fuel bill was €331m, while Ryanair paid €894m for fuel in the 12 months to the end of March 2010. While hedging can temporarily mask the impact of higher fuel costs for the airlines, it only buys them time.
It is a similar story for quoted ferry group ICG. Any sustained period of higher oil prices would also hit its bottom line hard.
While transport companies are most directly exposed to higher oil prices, they are not the only ones who will suffer.
Other energy-intensive companies, such as CRH and Smurfit Kappa, will also suffer.
The Government is also likely to lose out as an inability to fully pass on higher energy costs to cash-strapped customers will reduce the price buyers will be prepared to pay for both the ESB and Bord Gais. With such privatisations essential if the Government is to make its budgetary arithmetic add up, the Government will have no choice but to accept lower bids for the two companies, which are its two most saleable assets.
Still, it's an ill wind that blows no good. While most Irish companies are set to lose out from higher oil prices, it is a very different story for Tullow Oil, now the largest independent oil producer in Europe and the most valuable company on the Irish Stock Exchange. Over the past month the share price of Tullow has jumped by a further €2 or 13 per cent to €16.55.
Sunday Indo Business