Soaring Oil Prices mark the Downfall of Traditional Air Travel says Ryanair – as its Profits Plummet by 85%

Chief executive of low-fares airline Ryanair Michael O’Leary has announced that rising fuel costs are paving the way for budget air travel, whilst knelling the death of its high-fare competitors. "Higher oil prices won't end low fare air travel,” he told the UK Guardian, it just increases the attraction of Ryanair's guaranteed lowest fares, as consumers become more price sensitive and switch away from high fare/fuel surcharging airlines like BA….the airline industry is cyclical, and this downturn will provide enormous opportunities for strong, well financed airlines, such as Ryanair to grow."”

This statement, however, comes in the light of an overall slump in airline shares, not excluding Ryanair which has just undergone an 85% fall (down to 21 million euros) in its first quarter net profit – a plunge that was far below the expectation of analysts. Indeed, the airline warns that with a tumble of 15% (to €2.74), it could well find itself in the red for the whole year. While he expects the company to just break even in 2009, Dublin-based O’Leary warned of a possible loss of 60 million euros, compared with last year’s profit of 480.9 million. “The outlook for the remainder of the fiscal year, which is entirely dependent on fares and fuel prices, remains poor” he told the BBC.

Rapidly escalating jet fuel prices are quickly taking the blame for an international fall in airline profits. Ryanair alone saw a fuel bill soar from 36% in 2007 to a whopping 93% this year. Oil prices of $130 a barrel and over have also been held responsible for the 10% drop in Easyjet shares, as well as the 4.7% fall in British Airways, which saw the British national airline become the biggest percentage faller in the FTSE 100. Elsewhere, Germany’s Lufthansa which is currently suffering a ground crew strike, saw a loss of 2% and its neighbour Air France-KLM fell 1%.

Hundreds of flights, mostly during the winter season, are being cancelled all over Europe as Airlines struggle to regain a foothold in what appears to be a major watermark in air travel history. The world energy crises, along with general economic recession (most notably in Britain and Ireland), and decreased demand for airline travel certainly seem to mark a wind change in what has for many years been a smugly comfortable airline industry. For the moment, O’Leary’s claims that most high fare European airlines will “consolidate or go bust” this winter may indeed hold some water, as shareholders all over the world watch on with baited breath.

Sources:
www.bbc.co.uk
www.gaurdian.co.uk