Ryanair's chief executive has warned that some European airlines could go out of business if spiralling jet fuel prices remain high throughout the summer. Prices have surged dramatically since the war in Iran began on 28 February after the Strait of Hormuz, which, before the war, carried a fifth of the world's oil and gas, was blockaded by Tehran, leading to the worst fuel crisis for decades.
Fuel Price Surge and Its Impact
The price of a barrel of Brent crude oil to be delivered in June fell 0.5 per cent to $110.71 early on Wednesday, but it remains considerably more expensive than before the war began, when it cost around $70 per barrel. That rise has meant the price of jet fuel has risen nearly 84 per cent since the start of the conflict.
United Airlines and Lufthansa this week became the latest airlines forced to mull raising fares and scrapping flights as a consequence of that rise.
O'Leary's Warning
Michael O'Leary, who has been Ryanair's chief executive since 1998, believes the summer could present several challenges to its competitors if prices remain where they are. Speaking to CNBC, he said: “If pricing stays higher for longer this summer, we think a number of our airline competitors in Europe are going to face real financial difficulties.”
“I think there will be failures”, he added. “If it continues at $150 a barrel into July, August, September, then you’ll see European airlines fail and that, in the medium term, would probably be good for Ryanair’s business.”
Supply Concerns and Rationing Risks
Earlier this month, Mr O'Leary warned that fuel supplies could be disrupted by the war, amid fears of a shortage affecting the peak holiday season. Willie Walsh, head of the International Air Transport Association, told Reuters on Tuesday that airlines could face shortages if the war does not end soon.
“There is a risk that we'll see rationing of fuel supply, particularly in Asia and Europe,” Mr Walsh said. He added, however, that the situation was not yet as bad as the disruption caused by the Covid pandemic in 2020, which led to travel demand plummeting and hundreds of billions of dollars in losses for the aviation sector.
Ryanair's Strategy and Call for Action
To avoid such a situation, Mr O'Leary called for the Strait of Hormuz to be reopened as soon as possible, but said his airline will not increase prices even if supplies are affected. He said: “We are the best insulated, most hedged airline in Europe.”
“We can guarantee people there’ll be no price increases, no fuel hedging, no fuel surge levy surcharges, regardless of what happens to summer supply,” he concluded.
