Outspoken Ryanair CEO Michael O’Leary has forecasted that two major European airlines may cease operations by the end of winter, attributing this potential failure to the ongoing fuel crisis. He specifically highlighted Hungarian low-cost carrier Wizz Air and Latvian airline airBaltic as vulnerable, indicating they could deplete their cash reserves by the season’s close.
In a report by Il Sole 24 Ore, O’Leary pointed out that Ryanair has already incurred an additional $50 million in jet fuel costs this month. Furthermore, he warned that airlines have yet to experience the full impact of expected fuel shortages, projected to emerge in May, amidst tensions in the Middle East and the blockade of the Strait of Hormuz.
Ryanair typically hedges its fuel prices, securing 80% at $67 per barrel, anticipated to last until March 2024. However, the remaining 20% has been subject to market fluctuations, escalating to over $150 per barrel. This surge in costs poses substantial challenges for many airlines, leading to significant fare increases through additional fuel surcharges. O’Leary has expressed confidence that if oil prices remain high, bankruptcies could occur before winter concludes, with Wizz Air and airBaltic being particularly at risk.
The strife in the Middle East has exacerbated operational costs for various carriers, contributing to a decline in airline share prices. Ryanair’s share price fell from €35 ($37) to €25 ($29) as the conflict impacted fuel expenses. Without appropriate fuel hedging, Wizz Air and airBaltic may exhaust their reserves by the fourth quarter, potentially grounding their operations.
Wizz Air, responding to O’Leary’s remarks, emphasized its robust financial status and liquidity, arguing it could sustain operations for approximately 18 months. Conversely, airBaltic recently faced a credit rating downgrade from S&P Global, indicating financial strain despite receiving a short-term government loan. The airline’s future hangs in the balance, relying on successful restructuring efforts to alleviate its debt situation.
