Fuel cost and strikes hit budget carrier and Michael O’Leary expects more airlines to go bust

This article is more than 1 year old

This article is more than 1 year old

The Ryanair chief executive, Michael O’Leary, has said he expects more airlines to go bust, as the budget carrier posted a 7% drop in profits because of rising fuel prices and strikes hitting costs and bookings.

O’Leary predicted a grim winter for the aviation industry, with oil prices, interest rates and the US dollar rising and air fares falling.

He said Ryanair was better hedged than most rivals against the rise in oil prices, adding: “It is inevitable that more of the weaker, unhedged European airlines will fold this winter.”

Ryanair accused of inaction over racist incident on plane Read more

Several smaller airlines have collapsed in recent weeks, including the Cypriot carrier Cobalt last week, the Danish carrier Primera Air and the Swiss airline SkyWork. The UK regional airline Flybe warned of mounting annual losses last week, blaming weaker consumer demand and higher fuel prices.

Larger airlines were not immune to this, with many closing bases and cutting routes to minimise winter losses, Ryanair noted.

The Irish carrier, Europe’s biggest budget airline, reported a fall in net profits to €1.2bn (£1.1bn) in the six months to 30 September, with its average fare down 3% to less than €46.

Revenues rose 8% to €4.8bn. However, costs rose by 7% excluding fuel, after 20% pay increases for pilots and additional costs for staff training and cancellations and delays caused by air traffic control strikes. Ryanair’s share price was up 5% at lunchtime on Monday.

The company cut its forecast for full-year profits by 12% last month. It has been hit by a wave of strikes by pilots and cabin crew across Europe, which caused a spike in cancellations of higher-fare weekend flights and pushed up passenger compensation costs. Ryanair said 2018 would be the worst year on record for European air traffic control strikes.

O’Leary told Bloomberg TV that if the UK crashed out of the European Union without a deal next April “flights would be grounded … [and] the government would fall”.

However, while the risk of a no-deal Brexit was rising, he thought it was still unlikely and said a 21-month transition period to December 2020 was the most likely scenario.

He also said if the board wanted him to stay as chief executive for another two to three years he would do so, but he would not stay for another five years.

John Strickland, an aviation consultant, said Ryanair was going through a period of significant change, describing the airline’s acceptance of pilots’ unions last December for the first time in its 32-year history as a “massive change in their culture”.

He said the decision to use the chief operating officer, Peter Bellew, as the lead negotiator with the unions, rather than the outspoken O’Leary, signalled a “less combative, more human approach”.

O’Leary added on Monday that the airline hoped to reach deals with all its major unions by Christmas.

“Given the adverse environment that’s out there for airlines and the number of job losses being reported in recent weeks both by pilots and cabin crew, there is a much more sensible, common sense approach being taken by the unions,” he said.

O’Leary said that recent progress in talks left Germany and Belgium as the only two large markets for the airline where recognition agreements had not been secured.

However, John Moore, the head of industrial relations at the British Airline Pilots’ Association, said this month “things will only improve if there is regime change” at the top.

Neil Wilson, the chief market analyst at Markets.com, said: “Airlines are generally facing serious headwinds from a stronger dollar, higher oil prices and rising interest rates. Ryanair is less critically exposed to all of those but the strikes and unionisation are dragging it into the mire. The key question is whether management can sort out strikes before customers completely lose faith.”

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Ryanair is facing calls for a boycott on Twitter after a racist incident on one of its flights, which it has referred to Essex police.

The airline faces criticism that it did little to prevent a male passenger from inflicting a tirade of racist abuse on a 77-year-old woman. Ryanair apparently did not remove the passenger from the flight from Barcelona, instead moving the woman from her seat.

Ryanair said: “We have reported this to the police in Essex and as this is now a police matter we cannot comment further.”

• This article was amended on 23 October 2018. Ryanair’s half-year revenues figure was €4.8bn, not €4.4bn as an earlier version said. In addition, the article has been amended to clarify that compensation costs related to payments made to passengers for flight cancellations and delays.