Thursday, March 30, 2006
Ryanair fuel price hedging ends
Ryanair had hedged 90 percent of its fuel costs at around 49 dollars / barrel crude oil equivalent until tomorrow. It was hoping that the price would have dropped before the end of March. Instead the reality is that crude oil stands at 65 dollars a barrel. The facts are that oil is getting scarcer, political uncertainty is pushing the price higher than it would be in more stable times, but that does not alter the fact that it is rising in price and will continue to do so.
A debate on the BBC Radio 4 this morning was discussing how the UK is likely to miss its self imposed emission targets. Aircraft emissions aren't even counted in those figures.
Getting back to the point though, an expert on the programme stated that taxing aviation fuel would not make much difference to the number of passengers flying as it only made up 10% of the price of a ticket. This is not the case for the low budget airlines though. In 1992, fuel accounted for 10-12 % of Ryanair's cost base. Up until now it has been 36% but will rise significantly next week. Prices rises are inevitable.
Low cost airlines are very sensitive to increasing aviation fuel costs. One of the factors Air Wales cited was the increasing cost of fuel when it pulled its scheduled passenger services. Michael O'Leary CEO of Ryanair predicted a "bloodbath" among the budget carriers some time ago now. He was predicting that the competition between airlines would be the deciding factor. This is unlikely as there are plenty of routes without budget carriers operating on them. Eastern Europe still has plenty of under utilised routes as has North Africa. The real threat to the airlines is the increasing cost of fuel.
A debate on the BBC Radio 4 this morning was discussing how the UK is likely to miss its self imposed emission targets. Aircraft emissions aren't even counted in those figures.
Getting back to the point though, an expert on the programme stated that taxing aviation fuel would not make much difference to the number of passengers flying as it only made up 10% of the price of a ticket. This is not the case for the low budget airlines though. In 1992, fuel accounted for 10-12 % of Ryanair's cost base. Up until now it has been 36% but will rise significantly next week. Prices rises are inevitable.
Low cost airlines are very sensitive to increasing aviation fuel costs. One of the factors Air Wales cited was the increasing cost of fuel when it pulled its scheduled passenger services. Michael O'Leary CEO of Ryanair predicted a "bloodbath" among the budget carriers some time ago now. He was predicting that the competition between airlines would be the deciding factor. This is unlikely as there are plenty of routes without budget carriers operating on them. Eastern Europe still has plenty of under utilised routes as has North Africa. The real threat to the airlines is the increasing cost of fuel.
