Fuel hedging will support Ryanair shares amid expensive oil – Freedom Broker

Ryanair (RYAAY) warned of a possible significant rise in air ticket prices in 2027 if oil remains expensive. In the current quarter, the carrier’s fares will decline slightly, but the outlook for the winter period remains uncertain.

Locking in the cost of most fuel at $67 per barrel gives Ryanair an advantage over less protected competitors and supports business profitability, says Freedom Broker analyst Vladimir Chernov. At the same time, a subsequent increase in ticket prices could reduce travel demand and limit passenger volumes.

What Ryanair does

Ryanair (RYAAY) is an Irish low-cost airline and Europe’s largest air carrier by passenger numbers. The company operates short- and medium-haul flights mainly between European cities, offering a low base ticket price and charging separately for additional services.

Ryanair’s American depositary receipts trade on the Nasdaq under the ticker RYAAY. The company’s shares are also listed on European trading venues.

Jet fuel rose by 90%

The price of aviation fuel for the week ending September 4 reached $171 per barrel. That is 90% higher than the average for the same period last year.

Brent crude rose to $105 per barrel on September 10, while U.S. WTI climbed to $100. The price increase is linked to the escalation of conflicts in the Middle East and constraints on energy supplies from the region.

Fuel is one of the main expense items for airlines. If its price remains high for a prolonged period, carriers are forced to raise ticket prices, cut the number of flights, or accept lower profits.

Ryanair locked in fuel prices at $67

Ryanair has locked in the cost of 80% of the fuel it needs through March 2027 at around $67 per barrel. This mechanism is called hedging: the company enters into contracts that allow it to buy fuel at a pre-set price and reduce dependence on market fluctuations.

As a result, Ryanair’s actual costs for most of its fuel will be significantly lower than current market prices. Vladimir Chernov believes such protection will support the company’s profitability and allow it to feel more resilient than less hedged European carriers.

However, for the next fiscal year Ryanair has hedged only 15% of its fuel needs at $85 per barrel. If oil remains expensive, the company’s costs will begin to depend more heavily on market quotes.

Higher fares may reduce demand

Raising ticket prices would make it possible to partially pass additional costs on to passengers. However, airlines’ room for maneuver is limited: too rapid a rise in prices can lead to a decline in travel demand.

In the short term, Ryanair’s stock could be weighed down by fare declines in July–September and the lack of a clear outlook for the next two quarters. Management acknowledges that in winter ticket prices will remain at the same level or rise slightly.

According to Vladimir Chernov, Ryanair shares may remain highly volatile. At the same time, the company’s long-term resilience looks better than that of carriers that have protected themselves to a lesser extent from rising fuel costs.

High oil prices could accelerate the exit of financially weak airlines from the market. In that case, Ryanair will have an opportunity to increase its market share after fuel costs stabilize, although in the near term reduced competition will not eliminate the risk of weakening demand.

Previously, Freedom Broker wrote about the pressure of expensive jet fuel on Delta Air Lines’ results. Problems with costs and debt burdens have already led to weaker carriers exiting the market: one of the previous publications reported on the bankruptcy of Spirit Airlines.

Not an individual investment recommendation.