Slump in oil prices should enable Ryanair to break even this year
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Friday September 19 2008
A SLUMP in oil prices during the past two months should see Ryanair break even this financial year after it had earlier predicted a loss of up to €60m, chief executive Michael O'Leary said yesterday.
Speaking at the airline's annual general meeting in Dublin, Mr O'Leary told shareholders that as long as oil prices remain under $100 a barrel for the remainder of the year the low-cost carrier should break even.
His comments initially sent shares in the carrier soaring over 9pc, but they fell back later and closed down slightly at €2.52.
Mr O'Leary cautioned investors that lower oil prices would not necessarily deliver a profit this year as the company plans to use fuel savings to boost passenger numbers by offering cut-price ticket deals.
He added that if oil remained under $100 a barrel during 2009 it could herald a return to "substantial profitability" in the next financial year. He also said that lower fuel prices could reduce its operating costs by around €300m in 2009. However, kerosene prices have risen recently despite a fall in oil.
In July, Ryanair reported a profit of €21m for the first quarter of its financial year -- down from €139m for the same quarter the previous year.
Mr O'Leary declined to give any additional guidance on yields or his view on the impact of higher or lower oil prices.
The ebullient airline boss admitted that he had "screwed up" by failing to hedge against what was ultimately a rapid rise in oil prices.
"We're unhedged at the moment beyond the end of December and that's the right place to be," he said.
"We're looking at whether we could hedge at $100 a barrel, but our view is that oil will fall further because the economic downturn is going to be extremely severe."
Ryanair is still interested in pursuing a takeover of Aer Lingus, added Mr O'Leary, who said the low-cost carrier's almost 30pc stake in the former state-owned airline is a "long-term" holding.
Ryanair paid an average of about €2.50 per Aer Lingus share, whose stock closed at €1.54 yesterday.
The European Commission has already blocked Ryanair's takeover bid for Aer Lingus, but that decision is under appeal and the outcome of that isn't expected until next year. Aer Lingus has estimated that it could make a €100m loss this year.
An on-going strike by Boeing machinists could also delay the opening of a small number of new bases next spring, added Mr O'Leary.
Ryanair has already postponed the opening of bases at Edinburgh and Reus in Spain.
Ryanair is also to put some pilots on unpaid leave as it mothballs 20 aircraft for the winter. Mr O'Leary said the number of staff affected will be "small" and that the one or two weeks' unpaid leave will be "distributed" amongst the pilots.
- John Mulligan
