00:00Ryanair's CFO has warned some struggling airlines will go to the wall at the end of the year
00:05as the fuel crunch caused by the conflict of the Middle East continues.
00:09Neil Sorohan told CNBC the budget carrier has contingency plans for some kind of Armageddon situation
00:17but intends to operate a full schedule through the European summer.
00:22The warning came after Ryanair reported one-year profits of more than $2.5 billion,
00:27up 40% from the previous year, but the budget carrier saw revenue plunge more than 10% to around
00:36$18 billion.
00:37And with the conflict in the Middle East pushing up energy prices,
00:41Ryanair has hedged its jet fuel costs, buying 80% of its summer fuel for less than $700 a metric
00:48tonne,
00:48or $67 a barrel.
00:51But 20% still remains unhedged, so is subject to price spikes.
00:57Meanwhile, budget carrier Transavia has begun a cost-cutting drive in the Netherlands.
01:02Its French arm has cancelled 2% of its flights in May and June.
01:08Paul Charles is CEO of the PC agency, a luxury travel consultancy.
01:12Always lovely to have you on the programme, Paul.
01:15So Ryanair says it can ride this out,
01:18but does this fuel shock expose how vulnerable the low-cost airline model is?
01:24I think all airlines are vulnerable in some way at the moment,
01:28due to the unpredictability of the Iran conflict most of all,
01:31and the pressure it's putting on the global economy.
01:34There's no doubt that Ryanair has had a fantastic last year.
01:38To increase profits by 40% is very impressive during such a period of turmoil.
01:44But of course, it's the next year that's going to be absolutely critical to its future success.
01:50And I think there's a danger that, as Ryanair says,
01:53there will be certainly one or two carriers across Europe,
01:57those smaller low-cost carriers,
01:59who do find it very difficult to navigate this very unpredictable situation.
02:04And we've already seen Spirit collapse in the U.S.
02:07I know they had problems that preceded the current crisis,
02:10but do you think weaker budget airlines in Europe or Asia now come under more pressure?
02:17Yes, Spirit was already in financial Armageddon to some extent
02:21after going through bankruptcy twice over the last two years.
02:26It all depends, if you're a small airline,
02:29where you've hedged your fuel during this critical period,
02:32if you've bought your fuel well in advance
02:35at a price that you've been able to put into your forecast,
02:38then it does make navigating this crisis much easier.
02:41But there are some smaller airlines who would have taken a gamble,
02:44like many American carriers who don't hedge their fuel,
02:48and they would have taken this gamble on the basis
02:50they'd be able to ride out any crisis at whatever price,
02:54but they would assume that price would be under $100 a barrel.
02:58And of course, it's now at about $110 or so
03:01and could go much higher.
03:03So there will be a lot of nervous CEOs at the moment
03:06if they haven't hedged their fuel,
03:07and they'll be wondering what lies ahead.
03:10You and I have talked, as this crisis has unfolded,
03:13about the impact this is having on long-haul flights.
03:16But let's focus on the short-haul, which is still very popular.
03:19Ryanair even saying that demand is still super strong.
03:22Do you think that higher fuel costs are maybe changing
03:24how aggressively low-cost airlines can price their seats this summer?
03:31Low-cost airlines are in a difficult position.
03:33They're seeing the economy cabins overall a lot lower in terms of occupancy
03:40than they would have expected,
03:41a lot lower in terms of their load factors.
03:43Normally, at this time of year,
03:44they'd be more confident about those load factors,
03:47they'd be higher.
03:48But we're buying, certainly in economy cabins, much later.
03:52We're leaving it until the 11th hour
03:54before deciding whether to take a vacation,
03:57whether to pay the price that's on offer.
03:59And this is what's worrying so many low-cost carriers.
04:02They're not sure at what price they're going to be selling those seats.
04:05So there's a lot of hope in the industry at the moment
04:09around whether they're going to sell those seats in many cases.
04:11And the same applies to long-haul carriers as well,
04:14whether they're low-cost or not.
04:16They're not filling the economy cabins as fast as they would like.
04:19Premium cabins, not a problem.
04:21Those business classes are filling very nicely, thank you,
04:24at very high prices.
04:26But the economy cabins, it's more nerve-wracking in that space.
04:30Paul Charles, great to chat.
04:32Thanks very much.
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