Ryanair CEO warns if jet fuel prices stay high, European airlines may fail

Ryanair’s CEO said Tuesday that some European airlines could fail if jet fuel prices remain elevated through the summer, as the aviation sector faces mounting cost pressure from the Middle East war and disruption around the Strait of Hormuz.

Michael O’Leary told CNBC that budget carrier Ryanair is relatively protected because it hedged 80% of its fuel requirements, but warned that rivals with weaker hedging positions could face “real financial difficulties.”

“Jet A-1 was about $80 a barrel in March. It’s now $150,” said O’Leary, adding that if prices remain at that level into July, August, and September, “you’ll see European airlines fail.”

The average price of jet fuel rose to $179 per barrel in the week ending April 24, according to the International Air Transport Association’s Jet Fuel Price Monitor.

Fuel prices have surged since the Strait of Hormuz, a key route for global energy shipments, was blockaded after the war in the Middle East began on Feb. 28.

O’Leary said Ryanair is “the best insulated, most-hedged airline in Europe,” and that it would not impose fuel surcharges or raise fares due to higher fuel costs.

He said fuel supply concerns in the UK had eased in recent weeks, but the Strait of Hormuz must reopen “as quickly as possible.”

The International Energy Agency recently said that Europe could face jet fuel shortages within weeks, depending on its ability to replace lost supplies from the Middle East, which previously accounted for a large share of the region’s net jet fuel imports.

Other European carriers are already taking measures to limit the effect of higher fuel costs.

EasyJet said it incurred £25 million ($34 million) in additional fuel costs in March and expects to post a headline loss of between £540 million and £560 million for the six months to March 31. The airline has hedged 70% of its summer fuel needs, but said it expects capacity cuts and higher ticket prices.

Lufthansa has cut 20,000 short-haul flights through October to save 40,000 metric tons of jet fuel and reduce unprofitable routes.

Scandinavian airline SAS is canceling 1,000 flights in April due to fuel costs, while Dutch carrier KLM is reducing capacity by 80 flights due to rising kerosene prices.