Ryanair reports bumper profit on ‘favorable’ fuel hedges, sees major industry consolidation

BONN, Germany – Jan. 30, 2023: A Ryanair aircraft parks at Bonn airport in Cologne, Germany. Ryanair reported a bumper full-year profit for 2022/23 on the again of resurgent visitors and favorable oil hedges.

Ting Yang | Nurphoto | Getty Images

Ryanair on Monday posted a full-year web profit of 1.43 billion euros ($1.55 billion), aided by resurgent visitors and fares, together with favorable oil hedging positions.

Despite a tough first quarter in 2022 on account of Russia’s invasion of Ukraine, journey demand rebounded over the course of the yr. The Irish low-cost provider reported a 74% improve in full-year visitors to 168.6 million prospects, whereas fares have been up 10% on pre-Covid ranges.

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Operating prices rose 75% to 9.2 billion euros on account of a 113% improve in fuel prices, however the airline stated “favorable” hedges helped offset this, whereas unit prices got here in at 31 euros per passenger, significantly decrease than different European rivals.

“Our industry main fuel hedging (over 80% hedged at approx. $64bbl) contributed considerably to the ultimate FY23 profit end result, saving the Group over €1.4bn,” CEO Michael O’Leary stated in Monday’s earnings report.

Airlines hedge in opposition to the chance of potential will increase in oil costs by shopping for a certain quantity of fuel by way of ahead contracts at a set worth, for supply sooner or later.

International benchmark Brent crude was buying and selling at simply over $75 per barrel on Monday morning.

Ryanair is 85% hedged at $89 per barrel this yr, and firm Chief Financial Officer Neil Sorohan instructed CNBC on Monday that it will add round $1 billion further to this yr’s fuel invoice. But he stated Ryanair is assured it could cowl the fee improve and develop earnings “modestly” on a year-on-year foundation.

“Our steadiness sheet is likely one of the strongest within the industry with a BBB+ credit standing and €4.7bn gross money at year-end, regardless of an €850m bond compensation in March 2023,” O’Leary stated within the report.

“Almost all of the Group’s B737 fleet are owned and 99% are unencumbered, which considerably widens our price benefit, as rates of interest and leasing prices proceed to rise for rivals.”

Ryanair earlier this month signed an agreement to purchase 300 new Boeing 737-MAX-10 aircraft — 150 agency orders and 150 future choices — with phased deliveries scheduled between 2027 and 2033. The buy, delayed over a worth dispute in 2021, pertains to Ryanair’s ambition to hold 300 million passengers each year by 2034.

Ryanair CFO predicts European airline consolidation as fuel hedging drives bumper profit

“Apart from delivering vital income progress, the extra seats (coupled with larger fuel, carbon and noise effectivity) will additional widen Ryanair’s appreciable unit-cost benefit over all European competitor airline,” O’Leary stated in Monday’s report.

CFO Sorohan stated the airline’s low price base is its largest benefit because it seeks to develop its presence and market share all through Europe, however stated the most important threat to this progress technique was the aviation industry itself.

“Something at all times goes unsuitable each few years however as a result of now we have the steadiness sheet, as a result of now we have the fee base that now we have, we’ll have the ability to climate no matter storms come our method,” he added.

Consolidation ‘inevitable’

Capacity throughout European airways has undergone a “systemic change” in gentle of the Covid-19 pandemic, Sorohan stated, since many airways have been compelled to downsize. Meanwhile, OEMs (unique gear producers) are struggling to satisfy demand and leasing firms have been hit by sanctions on Russia.

But information exhibits that journey is excessive on folks’s priorities, Sorohan stated, which is why Ryanair feels snug putting a 300-aircraft order this month and setting out such bold visitors progress targets.

However, he burdened that consolidation throughout the industry in Europe is “inevitable” — and in reality has “already began.”

“Norwegian are half the dimensions they have been, however for those who take a look at Italy, 40% has been consolidated from ITA, the previous Alitalia, into Lufthansa with a view to attending to 100%. TAP in Portugal is up on the market, inevitably some capability will come out on the again of that, and there is extra of this to go,” he stated.

“I would not be stunned to see two of the opposite low-cost carriers in Europe being consolidated within the subsequent couple of years. I believe that is inevitable as nicely that you will see extra of that coming collectively and we transfer extra just like the U.S. mannequin, with simply 4 or 5 massive carriers successfully flying 80% of the visitors round Europe.”

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Larger European former “flag provider” airways suffered a major hit in the course of the pandemic, with a quantity propped up by controversial state help from their respective governments.

The EU General Court earlier this month annulled the German authorities’s 6 billion euro recapitalization package deal to Lufthansa (initially accredited by the European Commission) and the Swedish and Danish governments’ 1 billion euro package deal for SAS, ruling that the state help unfairly tilted competitors in the direction of Ryanair’s rivals.

“We’ve seen a systemic change in capability, and I believe we shall be left with a number of the historic massive flag carriers — Air France KLMs, Lufthansas — however finally short-haul, point-to-point, shall be one thing that Ryanair shall be a key participant in,” Sorohan added.

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