Michael O’Leary’s knack for finding tailwinds in turbulence is about to be tested again.
While Ryanair’s shares have slumped as much as 12.9 per cent since the US and Israel launched their first strikes against Iran at the end of February, they have outperformed a 16.3 per cent plunge by the wider European airlines sector.
With good reason. The largest carrier group in Europe entered the crisis with among the lowest exposures to the conflict regions in the Middle East, though it was forced to cancel its 12 daily flights to Jordan following the outbreak of war.
The group has the most efficient operating model among big carriers – with its cost per passenger running at under €34 late last year, excluding fuel costs, compared to €54 and €85 at fellow budget players Wizz and EasyJet, respectively, according to an investor presentation in January.
The figures for flag carrier groups from Aer Lingus parent IAG to Air France-KLM range between €165 and €225, though this is skewed by their long-haul businesses. But even on a cost per available seat kilometre (Cask), Ryanair is well in advance of the pack, according to analysts.
Ryanair also has the strongest balance sheet. Following the repayment of €1.2 billion of bond debt next month, it will be left with more than €1 billion of net cash. The median net debt of large European airline groups stands at about 1.2 times 2026 estimates for earnings before interest, tax, depreciation and amortisation, but is as high as almost four times at Wizz, according to analysts at Deutsche Bank.
More importantly, however, it was the most prepared for the impact of the latest Gulf conflict on energy prices, with about 80 per cent of its fuel needs for the year to the end of next March hedged at what it has reported to be the equivalent of about $67 per barrel. Brent crude has soared as much as almost 65 per cent since the end of February to about $112.
Indeed, jet fuel – which is what Ryanair really hedges through so-called forward swap contracts – has almost doubled, to reach a record $1,900 per metric ton on Thursday, according to commodities publication Argus Media.
Upgrading his stance on Ryanair’s stock to a buy last week, Panmure Liberum analyst Gerald Khoo said that the group was arguably the European carrier least affected by the war.
O’Leary stands unmatched in aviation crisis management. He first cemented his reputation by seizing the post-9/11 collapse in aircraft demand, negotiating a deeply discounted purchase of 100 Boeing 737 jets to accelerate Ryanair’s growth.
During the financial crisis between 2008 and 2012 – when most of corporate Ireland was battered and shell-shocked – Ryanair increased its passenger numbers by close to 40 per cent as it grew its European market share through aggressive fare pricing and expanding into markets vacated by weaker, often overborrowed, rivals.
Iran’s cyber-attacks on Irish-based companies and the ongoing impact of conflict in the Middle East
And when Covid-19 all but grounded the airline sector in 2020, Ryanair raised €1.25 billion in the equity and bond markets to have the firepower for opportunities. O’Leary signed an agreement with Boeing later in the year to buy 75 new Boeing 737 Max‑8200 aircraft, increasing its total firm orders for that model to 210 planes – even if he subsequently encountered delays in getting hold of the planes. The final one was received just days before the Middle East strikes.
Ryanair and other European short-haul airlines have enjoyed an early boost from the crisis, as families cancel Easter trips to the Middle East and long-haul flights via the Gulf in favour of holidaying closer to home. The group’s bookings over the Easter period are up by roughly 5 per cent.
But O’Leary’s call that the airline is unlikely to hedge its fuel costs before the end of June, as it waits for more clarity on prices, may yet prove a costly bet, with Wall Street analysts and even US government officials now considering the prospect of oil surging to an unprecedented $200 a barrel if the Strait of Hormuz isn’t reopened. About a fifth of the world’s crude and jet fuel supplies were passing through this critical shipping lane before it was closed by Iran in response to the US-Israel attacks.
US president Donald Trump’s washing of his hands on Wednesday of any responsibility for securing the strait – telling Europe it was on its own reopening the route, in a US prime time address laced with conflicting messages about when the war might actually end – piles risk on to O’Leary’s reticence to hedge at current levels.
Although UK foreign secretary Yvette Cooper convened a virtual summit on Thursday with counterparts from some 40 countries to explore ways to reopen the strait, any emerging coalition of the willing, in her words, will resort to “every possible diplomatic, economic and co-ordinated measure” to exert pressure on Iran, rather than force.
O’Leary, meanwhile, broke an unofficial industry code of silence on the risk of jet fuel shortages, telling Sky News he sees the potential for a 10-25 per cent shortfall of fuel supplies in Europe for May and June if the war continues beyond the end of this month.
Navigating through a fog of unpredictability, aviation analysts are reticent to revisit their forecasts for Ryanair and others.
“There is much uncertainty relating to fuel price, economic outlook, traveller confidence and airspace availability,” concluded Barclays analyst Andrew Lobbenberg in a note to clients. “Let alone fuel availability.”
It’s the kind of environment in which O’Leary, who turned 65 last month, usually comes into his own.