There's nowhere to hide when you're trying to weather the ever-worsening oil storms
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WITH hedging in place for just 10pc of its fuel for one quarter of the year, Ryanair has virtually no insulation from soaring fuel costs in 2009.
The airline is also particularly vulnerable to higher fuel prices since its trimmed-down cost base means fuel makes up an unusually higher percentage of total costs (36pc last year, compared with 21pc of costs at Aer Lingus).
If oil stays at a conservative $125, Ryanair's fuel bill will more than double to $1.6bn in 2009, giving the airline operating profits of about €90m, according to research from stockbrokers NCB.
With oil at $130, Ryanair has warned that it will only break even, a stark prospect for a company that returned profits of €481m for 2008.
Chief executive Micheal O'Leary, however, insists he actually welcomes higher oil prices despite the "short term pain", since other weaker airlines will be forced into bankruptcy leaving more "passengers for us".
In March Ryanair also embarked on an oil inspired cost-cutting drive, including a company-wide pay freeze. Some €20m in annual airport savings have already been achieved under this, and Ryanair also expects to secure €20m in handling cost efficiencies. The airline is also grounding 20 planes this winter.
Aer Lingus
AER Lingus had hedged some 28pc of its fuel costs for the 2008 financial year, so it has a slight buffer against rising international oil prices.
The airline has also recently completed a new maintenance deal that will save it €20m a year, and an employee cost-cutting deal that will save a similar amount annually. Those two savings will bolster Aer Lingus results for 2008 and 2009, and help mitigate against fuel prices.
Other mitigating factors include ever-soaring fuel surcharges on longhaul, as well as last week's decision to ground its LA flight from November, and hold off on expanding its longhaul fleet.
Rising oil will still have a punishing affect though; even with its hedging in place Aer Lingus's fuel bill is expected to rise more than 60pc to €413.6m in 2008 if oil stays at $125, according to the numbers from NCB.
At its AGM last week, Aer Lingus said it would "break even at best" in 2008 if oil stays in the mid-$120s. Most analysts now expect the airline to make a loss for that financial year.
