Ryanair's fuel hedge has kept European short-haul fares artificially low while jet fuel tripled, but the carrier's chief executive said Thursday that protection runs thin if oil stays above $100 a barrel into 2027.
The hedge math
Ryanair locked 80 percent of its estimated fuel needs at $67 a barrel through March 2027, a level that looked prudent when the Iran war erupted in March and shut the Strait of Hormuz. Jet fuel in Europe now averages $180 a barrel, according to IATA, leaving the unhedged 20 percent exposed to a spread the airline cannot absorb indefinitely. Chief executive Michael O'Leary told reporters the company hopes to avoid passing that cost through, but acknowledged a "significant uplift in airfares" if prices hold. A Ryanair spokesperson declined to comment.
The schedule cut
The carrier trimmed its winter schedule last week, a direct response to the unhedged portion of its fuel book. Chief financial officer Neil Sorohan had flagged an "armageddon situation" plan in May should the conflict escalate further, and told CNBC the airline had not promised to hold fares flat. "We price to fill the planes and the consumers pretty much decide what that pricing is going to be," he said.
The industry backdrop
European carriers bear the brunt because the region imports roughly half its jet fuel from the Middle East. Lufthansa has cut 20,000 flights through October. United Airlines is reducing planned capacity by 5 percent. Delta said it would "meaningfully" cut growth plans, while it, Southwest, United and JetBlue have all raised checked-bag fees. United and American Airlines each estimate fuel costs will rise about $6 billion versus last year. Spirit Airlines, already in bankruptcy, shut down in May after a federal rescue failed; its reorganization plan had assumed domestic fuel at $2.20 a gallon. The current price is $4.12.
What to watch
The hedge expires in March 2027. If oil remains elevated, Ryanair's next hedging round will be struck at dramatically higher levels, and the low-fare model that survived the financial crisis and Covid faces its first structural test since the 1990s. The company's stated rationale, that consumers set the price, is a claim, not a guarantee.