The chief financial officer of one of Europe’s most prolific low-cost airlines says the company has come up with a plan for a potential ‘armageddon situation’ triggered by high jet fuel prices as the Iran war drags on.
Neil Sorahan, CFO of RyanAir, said persistently high jet fuel prices may cause some airlines that were already struggling before the war to be hit even harder or potentially go out of business come winter. As for RyanAir, the company is prepared for even the worst possible situation if the conflict between the U.S. and Iran escalates.
“Do we have plans for some kind of Armageddon situation? Of course, we do, but I don’t see that coming to pass. As things stand, we’re operating a full schedule this summer, and plan to operate a full schedule into the winter period,” Sorahan told CNBC.
Sorahan, in an interview with CNBC Monday, said despite the fuel crisis, RyanAir may be insulated from the worst of the effects of spiking oil prices because it has hedged 80% of its summer fuel at an even lower price than it paid for fuel last year. And as a result, he doesn’t foresee any cancellations this summer or any sort of fuel surcharge added to fares, even though price increases may not be out of the question.
“We haven’t promised no price increases,” Sorahan said. “We price to fill the planes and the consumers pretty much decide what that pricing is going to be.”
The strain on oil supply caused by the war and Iran’s grip on the Strait of Hormuz, through which 20 million barrels of oil passed daily before the war, has skyrocketed the price of Brent crude to about $111 per barrel, around 18% higher than the price a month ago.
RyanAir did not immediately respond to Fortune‘s request for comment.
With negotiations between Iran and the U.S. stalled, and with President Donald Trump reportedly meeting with his national security team on Tuesday to discuss possible military options, it’s unclear whether oil prices—and by extension jet fuel prices—will fall anytime soon.
In just a few weeks, Europe’s supply of jet fuel will sink below the 23-day shortage threshold that could mean more rationing, canceled flights, and even the closure of smaller airports this summer, according to a note from Goldman Sachs.
Still, in a separate interview, RyanAir CEO Michael O’Leary said he has seen oil shocks before during Russia’s invasion of Ukraine and after 9/11: “This happens regularly within our industry,” he said. He claimed Europe is not going to run out of jet fuel, as some have predicted.
“We met with all of our fuel suppliers in Paris last week. There’s no issues over jet fuel supply right now through to September,” he told Bloomberg Monday.
Fears about the impact of the Iran war on low-cost carriers like RyanAir have come to the forefront especially after Spirit Airlines closed down earlier this month after 34 years of service. The airline, which was already struggling financially and had twice declared bankruptcy, was hit hard by the Iran war, and the uptick of oil prices.
Partly due to these concerns, RyanAir’s shares have fallen by more than 23% year-to-date. The airline’s shares were up more than 5% on Monday after it reported a 40% increase in profit after tax to just under 2.3 billion euros (about $2.7 billion) and a 4% increase in passenger traffic in its latest earnings report.
RyanAir CFO Sorahan said while other European airlines may “get themselves into trouble” in a similar way to Spirit because of high debt and increasing costs, RyanAir’s jet fuel hedging strategy will protect it and maybe even cause it to benefit from the potential misfortune of its competitors because of its oil hedging.
“About 700 million people a night are booking with RyanAir so there’s no shortage of bookings coming through,” he said.
