Ryanair and Aer Lingus 'facing €1.5bn oil shock'
RYANAIR and Aer Lingus face combined losses of up to €1.5bn by the end of next year if oil prices hit the $200 mark.
Calculations by Davy analyst Stephen Furlong suggest that Ryanair could lose €555m this year and a further €651m in 2009 on oil prices of $200 per barrel. Aer Lingus could face loses of €51.3m this year and a further €238m next year at these levels.
Oil prices jumped sharply last week, hitting another record level of just over $140 on Thursday. Opec President Chakib Khelil spooked markets further, saying that prices could reach $170 a barrel in the coming months. Monolithic Russian firm Gazprom has forecast oil prices passing $250 in future trading.
Furlong noted that despite suffering "profitability issues" neither Ryanair nor Aer Lingus was likely to go bust.
"The chances of Aer Lingus going bust are zero. Very few airlines have a net cash position. They have tons of cash, so they are not in the same kind of position as someone like Austrian airlines," according to Furlong. "It is more likely that their competitors will go bust."
Cash burn rates at the two Irish airlines will soar with higher jet fuel prices. Furlong forecasts that Ryanair could eat up to 19.2 per cent of its €2.17bn cash mountain next year. This would indicate that Ryanair has five years worth of cash to insulate it against huge oil prices. Aer Lingus cash burn rates are forecast to be lower at 12.6 per cent next year. However, airlines would conserve cash by slashing capacity and keep hiking prices if oil was to bust through the $200 mark.
Shares in Ryanair fell 10 per cent last week, with Aer Lingus shares hitting an all-time low of €1.49, down nearly 11 per cent.
- Nick Webb
