Ryanair chief executive Michael O'Leary said last month that he was hoping that oil will stay at $125 to $130 throughout the winter so weaker airlines will collapse and his airline can raise fares.
Speaking at a Dublin briefing as oil tipped new highs of $132, the Ryanair chief said he wanted the prevailing oil prices to continue, despite the short-term pain.
"I've now come to the view that I hope oil does stay at $125 or $130 a barrel during winter because I think that will bankrupt half of the airlines flying today," he said.
"In which case we'll still be the lowest-fares airline in Europe, but our fares won't be €40 a passenger, they might be a little bit higher."
If oil were to average $135 a barrel for the 2009 fiscal year and yields were to fall 5pc, Ryanair would still break even, O'Leary said.
"That doesn't mean we'll only break even," he added. "There's two variables in there, oil and yields, so there's not a set oil break-even point."
Ryanair's Michael O'Leary said today:
"Delivering record profits and traffic during a year of much higher costs, is a testimony to the strength of the Ryanair lowest fare model. The principal highlights of the past year included:
- After tax profit growth of 20% to €481m.
- Traffic growth of 20% to 51m.
- Added 30 new aircraft (year end fleet of 163 Boeing 737-800 jets).
- Opened 3 new bases at Bournemouth, Edinburgh and Belfast and 201 new routes.
- Improved punctuality and customer service figures at guaranteed lowest prices.
- Increased stake in Aer Lingus plc to 29.2%.
- Completed a €300m share buy back while still retaining €2.2bn in cash.
Average fares (which include baggage charges) fell by 1% as we opened new routes and bases to stimulate a 20% growth in traffic. Rising competitor fares and fuel surcharges helped to limit this winter fare decline to well above our -5% expectation. Ancillary revenues grew by 35%, almost double the rate of traffic growth. In-flight mobile telephony will be rolled out on a trial 14 aircraft from July 08 and will help us to grow ancillary revenues by allowing passengers to make and receive calls and texts on their own mobile phones during flight.
Unit costs rose by 2% reflecting the unjustified doubling of airport charges by the BAA Stansted monopoly, higher charges at the Dublin Airport monopoly and a 6% increase in average sector length. Cost increases over the winter were limited by our decision to ground 7 aircraft at Stansted and we will extend this program next Winter by grounding up to 20 aircraft (approx. 10% of our fleet), mainly at Stansted and Dublin where high airport charges make it more profitable to ground aircraft rather than fly them through the Winter.
The CAA's recent proposal to allow the BAA Stansted monopoly to raise prices by up to 150% on top of last year's doubling of airport charges, proves yet again that the UK's airport regulatory regime has failed abysmally. We have called for the dismissal of the CAA regulator, who has repeatedly failed to protect or promote the interests of users. The Competition Commission's recent review of the BAA monopoly supported Ryanair's position when it found that:
a) The BAA's monopoly ownership of the Scottish airports adversely affected competition.
b) The BAA's monopoly ownership of the London airports adversely affected competition.
c) The way the BAA monopoly conducted its business adversely affected competition.
d) The "inadequate regulatory regime" run by the CAA adversely affected competition.
Ryanair renews its call for the break up of the UK's BAA airport monopoly. Ryanair believes that splitting the London and Scottish airports into separately competing companies will bring about real competition, expedite capacity increases, improve passenger services and lower airport charges. Since this failed regulatory regime and abusive airport monopoly model has been copied at Dublin, we are continuing to campaign for the break up of the Dublin Airport monopoly. Competing terminals at Dublin Airport is the only way to improve passenger services and lower charges. In recent months the inadequate Irish regulator has rubber stamped further unjustified price increases for check-in desks, self service kiosks, car parking etc. as he continues to ignore the reasonable requirements of airport users. Dublin is now one of the few European capitals where no competing airports exist, and this is why it is vital for Irish tourism and the economy that we develop competing terminals at Dublin and prevent this Government owned monopoly from imposing massive price increases, while delivering an abysmal third rate passenger service.
The over-riding concern for airlines, passengers and investors currently is the irrational price of oil. Currently we face a price of $130 a barrel. Our hedging program last year insulated us from the worst of these price rises. Unlike almost all of our competitors Ryanair remains committed to a policy of no fuel surcharges – ever. We will continue to absorb these higher oil costs, even if it means that our profits will fall in the short-term, while we continue to deliver lower fares to almost 60 million passengers.
Ryanair is responding to these much higher oil prices by reducing costs in all other areas. In recent months we have added cheaper fuel efficient aircraft, announced a company wide pay freeze, implemented painful redundancies in our Dublin Call Centre, renegotiated many of our airport maintenance and handling contracts, as well as increased discretionary charges for baggage and airport check-in, to try to encourage more passengers to avail of web check-in and carry-on luggage facilities. The more passengers we convert to web check-in and carry-on luggage only, the more we can reduce our airport and handling costs and pass on these savings in the form of lower air fares.
Higher oil prices will not mean an end to low fare air travel. Higher oil prices will increase the attraction of Ryanair's guaranteed lowest fares, as consumers become more price sensitive, as competitors increase fares and fuel surcharges, and as many European airlines consolidate or go bust, a development which we believe is inevitable if oil prices remain above $100 this Winter. We do not believe that oil prices of $130 per barrel are sustainable over the medium term, but equally we don't know when they are going to fall. What we as an airline and our investors must remember is that this is a cyclical industry, and a downturn in the industry provides enormous opportunity for airlines such as Ryanair.
The airlines who will survive this period of higher oil prices and industry downturn are those with new cheaper fuel efficient aircraft, lower costs, substantial cash balances, low net debt and management who are ready to exploit downturns to drive costs lower and increase efficiency. No airline is better placed in Europe than Ryanair to trade through this downturn. We will therefore continue to grow, by lowering fares, taking market share from competitors, and expanding in markets where competitors either withdraw capacity or go bust. We believe that our earnings will rebound strongly when oil prices settle down as we believe they will, and in the interim we will take the tough decisions necessary to lower our costs in this difficult period.
The outlook for the coming fiscal year to March 2009 remains entirely dependent on fares and fuel prices. Based on forward bookings, we now believe it likely that average fares for the coming year will rise by approx. +5% and if oil prices remain at $130 per barrel, then we expect to accordingly breakeven for fiscal '09.
At the moment as there is nothing we can do about oil prices, we will continue to focus on improving our customer service metrics (punctuality, lost bags and cancellations), lowering costs and continuing to attack the regulated monopoly airports in London and Dublin who continue to increase charges for facilities that their users neither want nor need. If oil prices remain high, then there will undoubtedly be opportunities for Ryanair, as competitors withdraw capacity or go bust. If oil prices fall significantly, then our earnings will rebound accordingly. Either way we remain the best positioned European airline to take advantage of these market difficulties by utilising our lowest cost base, our substantial cash balances and our guaranteed lowest fares."