Wednesday 20 June 2018

O'Leary warns fuel surcharge may return as oil price spikes

Ryanair CEO Michael O’Leary has predicted air fares will remain flat in the next year. Photo: Matthew Lloyd/Bloomberg
Ryanair CEO Michael O’Leary has predicted air fares will remain flat in the next year. Photo: Matthew Lloyd/Bloomberg
John Mulligan

John Mulligan

Air fare fuel surcharges - imposed by airlines when oil prices soared in 2008 to as much as $147 a barrel - are set to make a comeback next year after the recent Brent crude price surge, Ryanair CEO Michael O'Leary has predicted.

He also said that while he continues to believe that an agreement for open skies between the UK and the European Union will be sealed, the airline has been drafting contingency plans for a hard Brexit that would see flights between the two regions grounded from next spring.

And Mr O'Leary has ditched his long-held ambition to start a low-cost, transatlantic service.

As Ryanair released full-year results yesterday, Mr O'Leary argued that Norwegian's challenging financial experience with the model, and the continuing dominance of carriers such as British Airways, Delta and American Airlines on the routes, has encouraged him to shelve any such plans.

"I've no interest in long-haul, low-cost. I don't think long-haul, low-cost is a profitable area," he said. "Too much of the long-haul market is controlled by the legacy airlines who are continuing to expedite very significant pricing power at the premium end of the cabin and can afford to dump the economy end of the cabin almost down at any price.

"Ultimately, long-haul, low-cost will be loss-making. I think we're excited by the opportunities available to feed into long-haul. We've reached agreement with Aer Lingus. We would hope to have the systems issues dealt with before the end of the year and to be launching a serious business feeding into Aer Lingus through Dublin."

Ryanair said its profit after tax rose 10pc to a record €1.45bn in the 12 months to the end of March, a period that included its pilot-rostering fiasco that saw it ground thousands of flights.

The profit topped expectations as the carrier flew 130 million passengers - 9pc more than in its 2017 financial year.

For the current financial year, the airline expects to generate profits of between €1.25bn and €1.35bn - lower than the €1.37bn expected by analysts.

Mr O'Leary said Ryanair isn't as bullish as other airlines and expects air fares to remain flat in the next year, rather than rising. He said that if further consolidation occurs in the airline sector within Europe this year, then air fares might rise.

He said Ryanair's fuel costs will rise €400m this year, while staff costs will increase by €200m. About half of that €200m figure comprises pay increases for pilots and the remainder is associated with expansion costs as it hires more staff and beefs up operations.

"I think you will see a return to fuel surcharges in the summer of 2019," warned Mr O'Leary of other European airlines. Ryanair never had such a surcharge.

The airline boss has previously warned of dire consequences if the UK and the European Union can't thrash out a fresh agreement to permit unhindered access between the two regions once the UK leaves the trading bloc next year. He has warned that such a scenario could see all air traffic between the UK and the EU grounded, at least temporarily.

"We hope there will be a transition agreement ... but we continue to plan that there will be a hard Brexit," said Mr O'Leary. "We think there is a likelihood - admittedly it is a small likelihood - that the outcome of the discussions between the British and the European Union will be unsuccessful."

Irish Independent

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