Ryanair has a plan to beat the COVID travel slump: fight climate taxes, buy more Boeing

July 26, 2021, 12:39 PM UTC

Aggressive expansion plans by budget airline Ryanair, Europe’s largest carrier by passengers, could potentially be at risk if EU member states do not put a stop to the Commission’s proposed aviation fuel tax.

Beyond posing a “very severe” danger to his business over the long term, chief executive Michael O’Leary warned certain climate change measures planned by Brussels aimed at the airline industry will inadvertently drive further divisions and inequality between countries in the EU. 

“We would hope that we will be able to persuade a number of EU peripheral countries — and also those countries like Ireland where we don’t have an alternative to flying — that the present proposals are very badly designed,” O’Leary said in a webcast statement on Ryanair’s first quarter results for the 2022 fiscal year through March.

The planned imposition of a duty on kerosene—used in airplane fuel—on top of the over €630 million Ryanair normally spends annually on European emission rights means the company is “basically facing double taxation for CO2 on short haul intra-European flights.”

While the kerosene tax would be shouldered by those traveling on brief trips with budget airlines—a largely working and middle class demographic—he said rich Americans, Chinese and other travelers from abroad who can afford flying first class or business to Europe would be exempted from making any contribution.

That’s because long-haul flights to and from Europe are excluded from the EU’s overarching climate package even though they account for 55% percent of the bloc’s CO2 emissions from aviation. Not surprisingly, given Ryanair does not service the long-distance market at all, O’Leary called for this decision to be reversed to better combat climate change.

The veteran CEO also appealed to politicians’ concerns over a further fragmentation of Europe. Wealthy central EU member states boasting an efficient, high scale rail infrastructure will enjoy an advantage over the tourist-dependent periphery and island nations like Ireland mainly accessible by flights, according to O’Leary.

“We’re also concerned (the taxes) essentially benefit the center of Europe — the Germans, the French, the Dutch that have alternatives,” he said. “We’re very concerned from a European integration point of view that these environmental taxes will penalize those peripheral countries of the EU that don’t have an alternative to flying.” 

For the current fiscal year, Ryanair forecast passenger numbers for the 2022 fiscal year, which ends in March, would rise to 90-100 million as travel restrictions are loosened, compared to the 27.5 million notched last year. Nevertheless, the company said, deep rebates on prices are still needed to stimulate demand and due to this “almost zero visibility” on fares, the airline could still end up with a small loss following an €815 million net loss in fiscal 2021.

Boeing delivers “game changer”

Ryanair nevertheless remained bullish that it will scoop up market share thanks to an ongoing retrenchment by less competitive peers like Italy’s flagship carrier Alitalia, where capacity is being slashed by nearly a third.

As a result, the Irish budget carrier is in the process of building out its fleet out over the next five years to some 600 aircraft capable of ferrying 200 million passengers annually. 

A major step towards this goal came last month, when Ryanair finally took delivery of its first three 737 MAX 8-200 planes following repeated delays, with another dozen due to arrive this summer. 

First ordered back in 2014, the model was designed with budget airlines like Ryanair in mind. It incorporates an additional mid-cabin safety exit, allowing it to gain regulatory approval for cramming a further 22 people on top of the 178 the MAX 8 can typically carry.

In total, Ryanair ordered 210 such planes for delivery, which should reduce its fuel bill by 16% while increasing capacity over its current aging fleet of Boeings. 

No mention was made in its results concerning an internal investigation into Flight 4978 hijacked by Belarus, and a spokesman for the company said it declined to comment on the results of its internal investigation

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