Bloomberg Talks
00:00:02 · Michael O'Leary, Tim Stenovec, Michael O'Leary
[00:00:02] S0: Bloomberg Audio Studios. Podcasts. [00:00:05] S1: Radio. News. Ryanair has reported profit after tax for the second quarter that beat average analyst estimates. It comes as Europe's largest low-cost carrier prepares to cut costs to help offset a € 2 billion increase in fuel charges next year. Ryanair's CEO Michael O'Leary is here with us in the London studio. Great to see you, Michael. [00:00:23] S0: Good to see you, Steve. [00:00:25] S1: A big announcement about cost-cutting in the set of results. Where are you going to do it? [00:00:29] S2: I mean, across the board, you know, firstly, we've reported this morning 2.15 billion after tax for the half year. A lot of that is based on the fact that we were hedged. We were hedged out to next March at $ 67 a barrel. But we and most of the European airlines are not well hedged into the summer of 27. And we've said if current oil prices remain where they are, we're looking at about a 2 billion increase in our fuel bill, 6 billion this year, it could rise to 8 billion next year. And we have to take out costs. So we've paid off all our debt, we're reducing our financing costs. [00:00:58] S0: We're purchasing the new. [00:00:59] S2: MAX 10 jet aircraft in the first quarter next year from Boeing, 20% more seats burned, 20% less fuel. [00:01:06] S0: But we're looking at everything, so airport. [00:01:08] S2: Costs, handling costs, and I think up for debate now is going to be probably a pay freeze next April for pilots, cabin. [00:01:15] S0: Crew, and the management team as well. [00:01:17] S1: Is job cuts a risk?
00:01:17 · Tim Stenovec, Michael O'Leary, Michael O'Leary
[00:01:17] S1: Is job cuts a risk? [00:01:18] S0: No, no, no risk. [00:01:19] S2: I mean, we are going to grow again next year by about 3%. We're taking 16 of the new MAX 10 aircraft from Boeing, so we will still grow. [00:01:27] S0: Next year, we expect to grow traffic by about 3% to 220 million passengers. [00:01:32] S2: But all European airlines are facing huge challenges next year because of this very significant jump in oil prices. [00:01:38] S1: Where would you see in terms of bases that might be at risk? [00:01:41] S2: I think those bases are countries that are raising taxes. So the UK raising APD, Belgium, where the Belgian government has introduced this insane aviation tax scheme. They've increased it by 250 percent from two to seven euros a ticket. And we're switching capacity away from the UK, Belgium, France, Germany, but into countries like Sweden, Slovakia, regional Italy, where they're abolishing aviation taxes. So there's a real move in Europe to abolish aviation taxes. They recognize that the way to if Andy Burnham is serious about delivering growth in every postcode, aviation tourism is the way to do it. But it's not going to be done if you're going to increase taxes on people traveling. [00:02:21] S1: How much pricing power do you have with your customers? You warned about this historic rise in airfares in Europe next year. So how much can you do that without losing passengers? [00:02:30] S0: I don't think we have much pricing power.
00:02:30 · Michael O'Leary, Michael O'Leary, Tim Stenovec
[00:02:30] S0: I don't think we have much pricing power. [00:02:32] S2: But what's happening within the industry this winter is capacity is being taken out hugely. Like you've seen Valare, Air Baltic are in Chapter 11. There will be other airline casualties in Europe this winter. Even Ryanair, we're only flat capacity year on year this winter. So Air lands are cutting back capacity this winter. I think that will continue into next summer. And with capacity reductions, you're going to see, I think, record increases in airfares in Europe, in the UK from in summer 27 onwards. We have to pay for these. Consumers will finally have to pay for these higher oil prices. We've insulated them for the last 12 months because of our fuel hedging. [00:03:05] S1: So, you know, planning next summer for people's summer holidays, what are they talking about, 20%, 30%? I mean, if. [00:03:10] S2: I was, I would be, my advice to consumers now is book early for next summer because the prices are going to rise significantly. [00:03:16] S0: So the sooner you book, the better. [00:03:17] S2: But, you know, there will still be lots of, Ryanair will still have the lowest fares in every market in which we operate, but there'll be less low fares. And I think there'll be less competition there next summer because more airlines are going to fail. [00:03:28] S1: With the number of, with airlines... Failure being a prospect, will you go looking for acquisitions? [00:03:33] S0: No, no, no.
00:03:33 · Michael O'Leary, Michael O'Leary, Tim Stenovec
[00:03:33] S0: No, no, no. [00:03:34] S2: I mean, we're all organic growth, Steve. So we have 300 MAX 10 aircraft on order. Next year, we take the first 16 MAX 10s. That's enough for us to grow. This year, 214 million. Next year, we do. [00:03:44] S0: About 220 million passengers. [00:03:46] S2: But I think there's no doubt that our profitability is going to take a hit next year if our oil bill increases by 33%. [00:03:53] S1: You mentioned the MAX 10s. There also have been warnings from both Airbus and Boeing about supply chain disruption in their earnings last week as well. As one of Boeing's biggest customers, how worried are you about that, even though you're finally going to get the MAX 10s? [00:04:04] S2: We're not worried because Boeing have confirmed, in fact, our 16 deliveries for next year and the first and the 16 deliveries for 2028 as well are all confirmed. We got in early with our MAX 10 order. We ordered them coming out of COVID. So we got great pricing and great delivery slots. But the fact that the manufacturers are all well behind on their deliveries means, again, capacity in Europe would be very tight for the next four or five years. There's going to be a lot less kind of choice and competition, and prices are going to rise. [00:04:35] S1: So does that hit, then, your growth forecast, if you're expecting.
00:04:35 · Tim Stenovec, Michael O'Leary, Michael O'Leary
[00:04:35] S1: So does that hit, then, your growth forecast, if you're expecting. [00:04:38] S2: Those more today? No, because we have 300 aircraft on order. They'll be delivered between now and 2034, and that will allow us to grow from 214 million passengers this year to 300 and. Just over 300 million passengers by 2034. So Ryanair will be the only airline in Europe still growing, I think, in the next five years. The price gap between us and every other will become wider and wider. But there's no doubt we and all European airlines are facing real challenges into 2027. [00:05:04] S0: But we've been here before. [00:05:04] S2: We were here Gulf War I, Gulf War II, 9-11, when Putin invaded Ukraine. The airline that emerged out of all those crises stronger was Ryanair because we go into them with no debt. Large aircraft, lots of cash on the balance sheet. These are the times when Ryanair does best. [00:05:20] S1: How do you compare this crisis to those other challenges that your industry has faced? [00:05:24] S2: It is as serious as those other challenges. The question is, how long does it continue? I mean, you know, we're all watching the US midterms this week. Does Trump lose the House and the Senate? What effect does that have on the war in Iran and the Hormuz Strait? We believe in the next probably two quarters, we'll see some resolution of the war in the Middle East. We don't believe the Americans or the Iranians want to continue it over the longer term. [00:05:50] S0: Straits for Hormuz will reopen. I think crude prices will come down.
00:05:50 · Michael O'Leary, Michael O'Leary, Tim Stenovec
[00:05:50] S0: Straits for Hormuz will reopen. I think crude prices will come down. [00:05:53] S2: But the crack spread between the difference in crude and jet, that is going to remain elevated, we think, for the next 12 months because of pressure on refineries, and pressure on tankering. So we, the airlines, are facing materially higher oil prices all the way through 2027, and that is going to get passed on in meaningfully higher airfares to consumers. [00:06:11] S1: So what does Ryanair look like in 12 months' time? [00:06:13] S2: I think we look like an airline with about 220 million passengers. I would hope we'll still be significantly profitable. The question is, I just don't know how profitable we'll be next year because we don't know what will be the final outturn on oil prices. I think we'll see oil prices coming down, but not to where we're hedged this year. [00:06:30] S1: In terms of a route network, how much smaller? [00:06:32] S0: The route network won't fundamentally change. [00:06:34] S2: We're seeing a lot of switching capacity away from places like Brussels, France, Italy, Brussels, France, Germany, the high tax economies, and large growth in the load in the non-tax economies now, Sweden, Albania. [00:06:48] S0: Slovakia, regional Italy, Ireland. where there's no tax on aviation. [00:06:53] S2: And I think that would put further pressure on both states and airports to reduce costs. For those states who are abolishing taxes and airports reducing costs, we'll see tremendous growth. States that don't get it, Berlin, Paris, they'll continue to see decline.