Ryanair suspends outlook as fuel costs rise and profit climbs

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Ryanair suspends outlook amid costs

Highlights

Ryanair suspends profit guidance for the coming year due to jet fuel price volatility linked to the Iran conflict, despite hedging 80 percent of costs.
Profit rises 36 percent to 2.4 billion euros and revenue climbs 11 percent to 15.5 billion euros, but recent pricing flattens amid higher oil prices and economic uncertainty.
Shares fall almost 3 percent in Dublin after news of 300 million euros in new environmental costs and ongoing contract negotiations with CEO Michael O’Leary tied to performance targets.

Fuel price pressure and earnings outlook

As reported by Financial Times, Ryanair says it has suspended profit guidance for the coming financial year because of uncertainty over the supply and price of jet fuel linked to the Iran conflict.

The carrier says it has hedged 80 percent of its jet fuel costs, but the price of the remaining unhedged portion has risen sharply. It says that if unhedged fuel prices stay at current elevated levels, annual unit costs could rise by a mid-single digit percentage.

For the 12 months to the end of March, Ryanair says profit rises 36 percent to 2.4 billion euros, while revenue increases 11 percent to 15.5 billion euros. Demand remains robust, although the airline says pricing in recent weeks eases somewhat because of economic uncertainty, higher oil prices, fears of fuel shortages and inflation risks for consumer spending.

The group adds that Europe remains relatively well supplied with jet fuel because significant volumes are being sourced from Africa, the Americas and Norway. It says it had originally expected summer fares to rise modestly from last year, but prices between July and September are broadly flat and the final outcome depends on bookings.

Cost burden and chief executive contract talks

Ryanair says it is also facing 300 million euros in new environmental costs, including emissions trading scheme payments, taking its total environmental bill to 1.4 billion euros. The airline says that cost burden makes EU air travel even less competitive.

The company also says it has begun negotiations with chief executive Michael O’Leary over a new contract covering 2028 to 2032. Under the proposed arrangement, he would be allowed to buy 10 million shares at the market price before the Iran conflict, a stake worth about 700 million euros, but only if ambitious profit after tax or share price growth targets are met.

Ryanair says the exact thresholds, including the share price target tied to the potential gain, will be set out later. Its shares fall almost 3 percent in morning trading in Dublin, extending the stock's decline this year to about 27 percent.

Our earlier coverage of WTI crude volatility highlighted how escalating Middle East tensions were lifting oil prices on fears of supply disruptions through the Strait of Hormuz. We noted that a tightening supply backdrop and a persistent geopolitical risk premium were keeping the market nervous, with technical levels pointing to further upside if the conflict intensified.

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