Group Chief Executive Officer & Executive Director, Ryanair
Ryanair CEO Michael O’Leary Talks Airlines, Fuel Risks | Bloomberg Talks
Ryanair CEO Michael O’Leary joins "Bloomberg Surveillance TV" to discuss the war in Iran's impact on the airline industry, fuel risks due to the Strait of Hormuz, and his prediction on when the conflict in Iran will end.
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About Michael O'leary
Michael O'Leary, Group CEO of Ryanair, reported a Q1 FY27 profit after tax of €538 million, a 34% decline from the prior year, which he attributed to a doubling of unhedged fuel costs and a 6% drop in average fares partly due to the Middle East conflict and Easter timing. He noted that traffic grew 6% to 61.3 million passengers, and that Ryanair has hedged 80% of FY27 jet fuel at $67 per barrel and 15% of FY28 fuel at $85 per barrel. O'Leary stated that the airline will not wait for passengers delayed by passport queues, saying "the plane is going without you" if they are not at the boarding gate on time. O'Leary criticized the UK government's Air Passenger Duty as a "ludicrous" tax, arguing its abolition would boost tourism, and dismissed a Treasury response as evidence that officials "don't live in the real world." He also opposed proposed EU passenger rights changes requiring airlines to advertise fares that include a second carry-on bag, arguing that more than 50% of passengers do not bring one and that the rule would force airlines to advertise higher prices than their lowest available fares. He described the regulation as "bureaucratic bunk" and said the EU has failed to address air traffic control delays or the emissions trading system tax on intra-EU flights.
Transcript (35 segments)
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Bloomberg Audio Studios0:02
Bloomberg Audio Studios, podcasts, radio, news.
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Interviewer0:07
Joining us now, legend of the industry, the Ryanair boss, Michael O'Leary. Michael, good morning. Good to see you. Come, we've been friends for a while.
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Michael O'Leary0:14
You're a fart of the industry.
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Interviewer0:15
How would you describe yourself? Old fart.
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Michael O'Leary0:17
Old fart, I think. Yes.
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Interviewer0:19
I think it's fantastic. Dinosaur. You've seen it all, sir. Have you seen something like this before? The situation years ago, the Russians invaded Ukraine. 20 years ago, the second Gulf War, the first Gulf War, 911.
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Michael O'Leary0:30
Yeah, this happens regularly within our industry. That's why in Ryanair we typically hedge 80% of our fuel. We're 80% hedged out to March 2027 at 67 bucks a barrel. We're in great shape. Apart from the fact our share price has tanked in the last two weeks because, oh, they're an airline. Oh, God. We just reported record full year results. 28 million passengers, 2.26 billion euros profit after tax, spitting off cash to shareholders, share buybacks, and with a bit of luck if this continues, although you know we can all have a debate how long we think this will continue in the Middle East and with the Straits of Hormuz, some of the flaky competitors in Europe will get taken out in carrier baskets by about September, October because they're not hedged on oil and they're borrowed up to their eyeballs in net debt.
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Interviewer1:17
Are you ready to buy?
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Michael O'Leary1:20
We are certainly ready to buy cheap aircraft. If anybody's got any cheap aircraft, I'm really excited. We are about to get the first 15 of our Max 10 aircraft from Boeing in the spring of 2027. 20% more seats per plane. Burns 20% less oil. The technological efficiency of the new engines is remarkable. And we've ordered 300 of those from Boeing. We priced them during COVID, so we've basically stolen them. And they will transform even our operating economics in Europe for the next decade.
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Interviewer1:53
So are you interested though in buying a new carrier in its entirety aside from just their aircraft?
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Michael O'Leary1:57
There is nothing in Europe you would want to buy. It's all crap. It will go bust in the not too distant future. Europe is inexorably moving the same direction the US did 20 years ago. Three large connecting carriers, BA, Lufthansa, Air France-KLM, they are making out like bandits at the moment because all the long haul connecting traffic has switched off the Gulf carriers and is going on those legacy guys. Short haul, Ryanair will continue to dominate the short haul space in Europe because we have much lower fares and much lower costs. We're the only really low fare, low cost carrier in Europe. There's a few other low fare, not so low cost carriers in Europe, but they're all going to go the same way as Spirit and Frontier in the States.
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Interviewer2:39
That's what I wanted to ask. It seems like the model in the US is really struggling. We had Spirit go bankrupt. There's talk of mass consolidation among some of the other low cost carriers and this idea that every consumer is expecting higher quality and that that is what's generating a lot of the revenues. How does Ryanair succeed in that environment, in that demand backdrop?
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Michael O'Leary2:58
I mean the problem for the last 20 years in the States is there's really been no low cost carriers anymore. I mean we copied this formula originally from Southwest back in the late 1980s when Herb Kelleher was in charge. You know, Southwest were charging $10 fares. Now, Southwest average fare last year was 140 bucks. It's not a low fare carrier anymore. If you had a real low fare carrier here in the States, as Ryanair is in Europe, our average fare last year was 40 bucks, there would still be very strong demand because the main airlines here, I mean, they've had control of the supply in the market for the last 20 years and they've been pricing up. The cost of air travel in the States is incredibly high, particularly given that you don't pay for ATC.
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Interviewer3:37
Could you expand into the US?
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Michael O'Leary3:39
No, absolutely not. We're too busy expanding in Europe and in those countries around Europe. There is so much growth available to us in Europe. You look at last year we grew 4%. We're the biggest airline in Europe. We grew 4% to 260 million passengers. This year I grow another 4%, 260 million passengers. And in the next decade with these Max 10 aircraft, I'm going to grow to 300 million passengers all in Europe. I mean Europe is the best playground for low cost airline that you could possibly imagine. A couple of big useless legacy airlines charging more, you know, charging annual salaries for their long haul travel, but nobody able to do the low cost stuff. We do the low cost stuff well with cheap Irish guys, you know, and so we do it well with the Max and with an order for 300 really fantastic aircraft.
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Interviewer4:25
Used to be so mean back in the '90s. Used to be so mean. It was brutal. Do you remember that?
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Michael O'Leary4:30
Well, we were never brutal. We were cheap and mean. Now we're just cheap and cheerful. New aircraft, on-time flights, huge customer service. I mean, last year our customer service metrics were record. Customer service satisfaction was up from 86 to 89%. I never thought I'd see the day when I got more than 50% customer satisfaction, but hey, who knew?
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Interviewer4:51
Can I ask you, where are Europeans traveling to this summer for vacation? Do they want to come to America anymore?
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Michael O'Leary4:56
No. No. I mean, sorry, that's not true. Yes, they do. But the problem is that the cost of long haul travel has got very expensive. So you know there isn't much competition across the Atlantic between the European legacies and the US majors. The Gulf carriers were the real disruptors for the last 20 years and their capacity has been halved in recent months. So a huge amount of Europeans will holiday at home in Europe this year in Portugal, in Spain, in Italy and Greece. A lot of Americans are still coming to Europe for the quality, for the sunshine, the culture and the alcohol. And longer they continue to travel. But I think there's a real sea change this year of people who would historically have gone to the Middle East or using the Middle East carriers to connect to long haul probably going to stay at home in Europe this summer.
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Interviewer5:42
When will Europe run out of fuel?
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Michael O'Leary5:44
It won't.
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Interviewer5:45
It won't. There was a real concern I think back in April. You know, there was real worries over supply, jet supply.
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Michael O'Leary5:51
The jet supply has now, we met with all of our fuel suppliers in Paris last week. There's no issues over jet fuel supply right now through till the end of September. There's one issue in the UK, Q8, which is the subsidiary of the state of Kuwait, have about 30% market share of some of the airports in the UK. Even they now are resourcing that supply. Most of Europe's jet A1 supply comes from West Africa, the Americas, Norway and the lifting of Russian sanctions has also eased the supply of jet fuel into Eastern European countries.
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Interviewer6:19
So you don't seem concerned with what's going on right now with the conflict in Iran.
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Michael O'Leary6:22
I'm very concerned about the price of oil, but I don't believe the conflict in Iran will have any disruption on European jet supplies. The question for us is how long will the Straits of Hormuz remain closed. I mean, we gave guidance this morning, if it remains closed till March 2027, our unit cost, because of our unhedged 20%, our unit cost might rise, you know, mid single digits this year. Nobody believes.
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Interviewer6:46
What are you hedged out to? Can you just explain your current hedging strategy? What are you hedged out to?
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Michael O'Leary6:50
Jet fuel. We have bought 80% of our jet fuel requirements, John, out to March 2027 at $67 a barrel. So, we're sitting, you know, we're in great shape. Great position.
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Interviewer6:58
Great position. But nobody really believes that the Straits of Hormuz are going to stay closed until March of next year. It's just we don't know when they're going to reopen. Iran is going to starve if they don't get it reopened. The Straits of Hormuz reopen in the next couple of months. The midterm election season kicks off in Memorial Day at the end of May. You know, Trump is going to lose the House and the Senate if he doesn't get this resolved and reopened. But the timing is, none of us know when the timing will be, but you know, I hope it's sooner rather than later. But if it stays, if it becomes later, say it's, you know, for something happens that none of us expect, the straits stay closed till September, October, November, then we are looking at our unit costs will be up about 5%. But you'll be looking at kind of airlines failing all over Europe on the way out.
Who's failing?
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Michael O'Leary7:44
Well, I can't really name them, but you know, some of our low fare but not so low cost competitors.
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Interviewer7:49
EasyJet, Wizz?
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Michael O'Leary7:50
I don't think EasyJet will fail. I mean, I don't think they'll make any money this year. Wizz could well be a candidate for failure. Air Baltic, which was recently bailed out by the Latvian government, gave it a 30 million loan to get them from June through to August, but they have to repay the loan in August. I mean, good luck with the Latvians trying to get that repaid at the end of August. So I think there will be casualties but again a lot depends on how, I mean you know more about this than I, how long the Straits of Hormuz remain closed, when can Trump declare a victory and you know kick off the midterms and I suspect it's probably going to be the end of May maybe early June but what the hell I mean if my predictions were any good I wouldn't be working in the airline business, I'd be working in a proper functioning business like Bloomberg.
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Interviewer8:31
I'll get it right this time.
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Michael O'Leary8:32
With your rockstar salaries.
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Interviewer8:33
I'll get it right this time. Michael O'Leary, old fart of the airline industry, boss of Ryanair. Michael, good to see you, buddy. Thank you.