The Times 4 June

Ryanair predicts oil price will hit rivals

The chief executive of Europe's largest airline says that rising oil prices will force smaller competitors to go bankruptDavid Robertson
Michael O'Leary, the chief executive of Ryanair, has welcomed high oil prices, claiming that it will drive “crappy competitors” out of business.

The boss of Europe's largest airline yesterday identified a number of rivals that he expected to go bankrupt in the coming months because of rapidly rising fuel bills.

He said that Sky Europe, Flybe and Jet2, which are all smaller low-cost carriers, could be grounded in the coming months.

Mr O'Leary added that he expected only five carriers out of the hundreds operating in Europe to break even or make a profit this year: Ryanair, easyJet, British Airways, Air France and Lufthansa.

He said: “I hope oil prices stay high over the winter because we will get rid of a lot of crappy competitors. A few carriers will be safe but everyone else is in danger of going bust.”

More than a dozen airlines worldwide have already gone out of business this year because of record oil prices and analysts forecast that the coming year could see a “blood bath”, with carriers hit by both high costs and falling demand as global economies slow.

Mr O'Leary admitted that the airline would try to offset higher costs through additional charges on items such as checked baggage and airport check-in.

The airline said that overall fares would rise by 5 per cent and that Ryanair would break even in the coming year.

However, he said that if fares did not increase and oil prices remained at $130 a barrel it would lose €125million (£99million) compared with a record net profit of €481 million in the year to March 31.

Flybe, which operates regional services from Birmingham and Southampton, rejected Mr O'Leary's claim that it was in danger and said it would be able to break even with oil at $170 a barrel.

Mike Rutter, the chief commercial officer, said: “Flybe notes with indifference the latest rantings of Mr O'Leary and notes his usual attempt to deflect attention from his own results by making unsubstantiated accusations about other airlines.”

Jet2, based at Leeds-Bradford airport, also said that it would survive high oil prices.

Philip Meeson, the chief executive, said: “I'm sorry Mr O'Leary - unlike you, Jet2.com has bought all its fuel for this summer, this coming winter and next summer at attractive rates. Our passengers can rely upon us for many, many years to come.” Sky Europe, which flies to Prague and Vienna, was unavailable for comment.

Mr O'Leary was adamant that the high-cost environment would make life impossible for rivals. He said: “If oil stays at $130 as we expect, then most airlines are going to be losing horrific amounts of money.”

A number of airlines have admitted in recent weeks that the next year will be difficult and carriers are planning to cut the number of services they offer to reduce costs.

BA will cut its capacity by about 10 per cent this year and has also reduced its profit-margin forecast. Ryanair said it, too, would mothball aircraft over the winter, grounding about 20 planes including up to 15 at Stansted. Services to France are expected to be reduced as a result.

Despite the difficulties caused by high oil prices, Mr O'Leary insisted that Ryanair would benefit from this environment as passengers deserted higher-cost alternatives.

He said: “The era of low-cost travel is not over. Rather, the era of high-fare air travel is over. Consumers will become more price sensitive and people will recoil from BA's fuel surcharges.” British Airways increased its fuel surcharge last week for the second time in a month and is charging an additional £218 return for its longest flights.

In its financial results presentation, Ryanair also said that it would take a €92million writedown on its investment in Aer Lingus, another Dublin-based carrier.

Ryanair bought a 29.2 per cent stake last year but has been blocked from buying Aer Lingus outright for competition reasons. This prompted Mr O'Leary to say: “We're not paranoid but the people in Brussels do have it in for us.”

Charge of the flight brigade

— Airlines have responded to rising oil prices by adding fuel surcharges to their fares. BA’s surcharge on flights to New York is higher than the basic fare

— Ryanair said that it would not introduce surcharges even if oil hit $200 a barrel but Michael O’Leary, the chief executive, did admit that other charges would go up

— Ryanair has predicted that average fares will increase by about 5 per cent this year, or roughly £2 per passenger per flight. Mr O’Leary identified airport check-in and checked-baggage charges as the most likely to rise

— The airline charges passengers £4 one-way if they want to check-in at the airport and £8 for checking a bag

— Priority boarding, which is favoured by family members who want to sit next to each other, costs £4 each

— Buying tickets with a credit card costs £3.20 and £1.20 with a debit card

— The airline has a baggage weight limit of 15kg, which is less than most rivals, and has begun to penalise passengers with heavier bags, charging £12 per kg

— Mr O’Leary said yesterday that these additional charges were not “fuel surcharges by another name” because passengers had the option of avoiding them. He said that Ryanair wanted to “fine” passengers who check-in at airports or checked baggage because this increased the carrier’s costs