Ryanair profit slumps 36% on doubling of unhedged fuel

Ryanair’s pre-tax profit slumped 36% to €593m in the three months to June as the Iran conflict drove a sharp spike in unhedged jet fuel costs. The budget carrier’s operating costs jumped 11% to €3.8bn, undershooting analyst expectations and prompting a cautious market reaction.

While the airline fixed 80% of its current-year fuel needs at $67 per barrel, the remaining 20% was exposed to spot markets. That unhedged portion more than doubled in price to $150 per barrel during the quarter, wiping out the margin benefits of its conservative hedging policy.

To combat softer demand, Ryanair slashed fares to drive volume. Traffic rose 6%, but the lower ticket prices pushed total revenue down 1% to €4.3bn. The strategy highlights a difficult balancing act for European carriers: absorb elevated energy costs or sacrifice pricing power to fill seats.

Chief executive Michael O’Leary attributed the weak pricing to the broader fallout from the Middle East conflict. “The Middle East conflict led to consumer hesitancy, concerns about EU jet-fuel shortages, economic uncertainty and later bookings,” he told investors. Airlines across the sector have noted that last-minute booking patterns are hampering forward planning.

The near-term outlook offers little relief. “Despite a recent, slight, uptick in volumes, and less price stimulation, second-quarter pricing is trending modestly down year-on-year and the final first-half fare outcome is heavily dependent on the strength of close-in bookings in August and September,” O’Leary added.

Investors will also note the rising cost of the airline’s future energy insurance. For the 2028 financial year, Ryanair has so far hedged just 15% of its requirements at $85 per barrel. This signals that management expects elevated commodity prices to persist well beyond the current geopolitical shock, fundamentally altering the carrier’s baseline cost structure.

Stockbroker Panmure Liberum warned that the update will be viewed as “slightly disappointing” by the market. The earnings miss comes just weeks after the board handed O’Leary a six-year contract extension that could yield 10m additional shares. Chairman Stan McCarthy said he is “pleased to report” that O’Leary has agreed to extending his leadership “for the benefit of all shareholders.”