Ryanair Reports Strong Profit Boosted by Increased Traffic and Favorable Fuel Hedges

Ryanair, the Irish low-cost carrier, announced a net profit of 1.43 billion euros ($1.55 billion) for the full year. The company experienced a resurgence in travel demand and fares throughout the year, despite a challenging first quarter due to the conflict in Ukraine. Full-year traffic saw a remarkable 74% increase, reaching 168.6 million customers, while fares rose by 10% compared to pre-Covid levels.

Although operating costs rose by 75% to 9.2 billion euros, primarily due to a 113% increase in fuel costs, Ryanair managed to offset this through advantageous fuel hedging positions. The airline’s unit costs per passenger, at 31 euros, remained significantly lower than those of its European competitors.

Ryanair’s CEO, Michael O’Leary, attributed the airline’s substantial profit outcome to its industry-leading fuel hedging strategy, which saved the company over 1.4 billion euros. By purchasing fuel through forward contracts at fixed prices, Ryanair hedges against the risk of potential oil price increases. Currently, Ryanair has hedged 85% of its fuel at $89 per barrel for this year, which will result in an additional $1 billion in fuel costs. Despite this increase, the airline remains confident in covering the expense and expects modest year-on-year profit growth.

With a BBB+ credit rating and 4.7 billion euros in gross cash at year-end, Ryanair maintains one of the strongest balance sheets in the industry. The majority of the airline’s B737 fleet is owned and unencumbered, providing a significant cost advantage as interest rates and leasing costs continue to rise for competitors.

Ryanair recently finalized an agreement to purchase 300 new Boeing 737-MAX-10 aircraft, consisting of 150 firm orders and 150 future options, to be delivered between 2027 and 2033. This acquisition aligns with Ryanair’s goal of carrying 300 million passengers annually by 2034. The increased seating capacity, coupled with enhanced fuel efficiency, positions Ryanair with a considerable unit-cost advantage over other European airlines.

While Ryanair considers its low-cost base as its primary advantage for expanding its presence in Europe, the company acknowledges that the aviation industry itself presents the greatest risk to its growth strategy. Despite occasional challenges, Ryanair’s robust balance sheet and cost structure enable it to weather potential storms.

Ryanair’s CFO, Neil Sorohan, emphasizes the inevitability of consolidation within the European airline industry. The pandemic has already triggered a systemic change in capacity, with many airlines downsizing. Sorohan expects further consolidation, pointing to examples such as the merger of ITA (formerly Alitalia) into Lufthansa and the potential sale of TAP in Portugal. He predicts that more low-cost carriers will likely merge in the coming years, ultimately resulting in a market structure resembling the U.S. model, with a small number of large carriers dominating the majority of European air traffic.

Sorohan believes that while larger European flag carriers, such as Air France KLM and Lufthansa, will persist, Ryanair’s strength lies in its short-haul, point-to-point model. The company is poised to be a significant player in this segment of the market.