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Ryanair Posts Impressive FY23 Profit as It Capitalized on Its Oil Hedging Positions

Ryanair Holdings Plc (NASDAQ: RYAAY) one of the largest and most well-known low-cost carriers in Europe has reported a full-year net profit pegged at 1.43 billion euros ($1.55 billion). This record was boosted by increased traffic and rates, as well as favorable oil hedging positions of which it recorded more than 80% hedged at approximately $64 billion.

Notably, fuel hedging allows airlines to secure fuel at predetermined prices, reducing their exposure to price fluctuations in the unpredictable crude oil market.

According to reports from CNBC, Ryanair reported a 74% rise in full-year traffic to 168.6 million people, while rates were 10% higher than pre-Covid era. Interestingly, the update comes despite a difficult first quarter in 2022 which, despite the Russian invasion of Ukraine, travel demand improved relatively in the year.

The reported 74% customers increase indicates a strong recovery in passenger numbers. This suggests that people were gradually returning to air travel, possibly as COVID-19 restrictions eased and vaccination rates increased.

However, the report highlighted that Ryanair’s operating costs for the year rose to 9.2 billion euros, primarily driven by a 113% rise in fuel costs. Nonetheless, the low-cost airline established it was able to offset some of the increase in fuel costs due to favorable hedges.

Additionally, the report noted that the unit price was 31 euros per passenger, which was significantly lower than comparable European competitors. This lower fare served as an advantage for the airline in terms of competitiveness and profitability.

While Ryanair is already 85% hedged at $89 per barrel for this year, Neil Sorohan, Ryanair’s Chief Financial Officer highlighted the favorable fuel hedges will result in an increased cost of about $1 billion on the fuel bill this year.

The current Ryanair profit growth push complements the Q4 performance from the company and while according to Sorohan, Ryanair considers its low-cost base as a factor, it may face impediments in its aims to expand its presence and market share across Europe. He mentioned that the biggest risk to Ryanair’s growth strategy is the aviation industry itself.

The aviation business faces numerous problems and uncertainties, including fuel pricing, regulatory changes, geopolitical events, economic conditions, and competition from other carriers.

According to Sorohan, consolidation in the European aviation industry is seen as “inevitable” and has already begun. Consolidation in this regard refers to the process of merging or acquiring airlines to create larger entities with increased market share and operational efficiencies. Notably, consolidation can result in cost savings, increased operational efficiency, extended route networks, and increased competitiveness.

Sorohan went further to say he wouldn’t be surprised if two of Europe’s other low-cost carriers were merged in the coming years. He claims the European aviation industry is likely to mimic the US model, with just four or five huge carriers essentially carrying 80% of the business around Europe.

Ryanair Posts Impressive FY23 Profit as It Capitalized on Its Oil Hedging Positions

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