When the war in Iran started squeezing airlines with higher fuel prices in March, Ryanair had a buffer: it hedged the majority of its estimated fuel needs at a set price through March 2027, a tool that helped it avoid passing on costs to consumers. 

“Our industry leading hedging means we are better insulated from higher oil prices than any EU competitor,” Ryanair said in its annual report released in June. 

But now, as oil tops $100 per barrel with escalating military conflict between the U.S. and Iran, Ryanair’s CEO Michael O’Leary warned on Thursday that flight prices could still go up. 

“If ​oil prices remain high into next year, I think there ​will be a significant ​uplift in airfares, and we would ‌hope ⁠to avoid that,” O’Leary told reporters in comments reported by Reuters. A Ryanair spokesperson declined to comment. 

Before becoming CEO in 1994, O’Leary helped remake Ryanair around a no-frills formula inspired by Southwest Airlines where tickets reflected the price of the seat and didn’t cover anything else, including drinks and food on board. For over 30 years since, rock-bottom prices on Ryanair have persisted through the Great Financial Crisis and even Covid, but the largest international energy shock in history is challenging even this. 

A key way the company has helped keep seats cheap was through its fuel-hedging program, historically locking in 70% to 90% of its jet-fuel costs in advance to avoid paying for price swings, but the war in Iran’s impact on fuel seemed to undermine that. Its July corporate disclosure shows it hedged 80% of its fuel at $67 per barrel through next March, but the rest is exposed to market pricing. Jet fuel now averages $180 per barrel in Europe, according to the International Air Transport Association. Ryanair cut its winter flight schedule last week as a reaction to its unhedged jet fuel.

The company’s CFO Neil Sorohan told CNBC in May that the company has plans for an “armageddon situation” if the war in Iran escalated and further increased the cost of fuel, but also didn’t rule out making flights more expensive to compensate.

“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.”

Global jet fuel crisis 

When war in Iran began and closed the Strait of Hormuz, through which a quarter of global seaborne oil supply passes through, it initially doubled the price of jet fuel, a refined petroleum product. It affected Europe more than the U.S because the former imported about half of its jet fuel from the Middle East. 

Airlines responded to these higher fuel costs by raising fare, trimming less-profitable flights and rethinking growth plans. German carrier Lufthansa cut 20,000 flights through October and United Airlines said it will cut 5% of its planned flights. Delta said it would “meaningfully” cut its growth plans because of fuel costs, and it joined Southwest, United and JetBlue in raising checked bag fees as well. United and American Airlines both estimated about $6 billion increases in fuel costs compared to last year. 

Jet fuel costs also dialed up financial pressures on struggling airlines like Spirit, which shuttered in May after an effort to rescue it through a federal bailout failed. Spirit operated under bankruptcy protection last year, and had presented a reorganization plan before the war started that projected domestic fuel prices to be $2.20 per gallon. Now it’s $4.12, according to the International Air Transport Association.