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Fare wars are coming: Ryanair

Alice Tidey
Updated
Fare wars are coming: Ryanair

European airlines will have the "mother and father of all fare wars" this winter as oil hedged prices come off, Ryanair (Irish Stock Exchange: RY4C-IE) CEO Michael O'Leary told CNBC on Friday.

Talking to CNBC from the Ambrosetti Forum in Italy, Michael O'Leary said that the fall in oil prices has been fundamentally good for the world economy and for the airline industry.

Oil prices, which have been on a rollercoaster ride since June 2014 and currently trade around $50 per barrel, should remain low in the short to medium-term according to O'Leary as reluctance by oil-group the Organization of the Petroleum Exporting Countries (Opec) to implement production cuts and U.S. shale production continue to weigh on world oil supply.

The airline industry, which is heavily hedged on oil prices, has not been able to tap much into the oil price drop until now, but that is expected to soon change.

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Hedging is used by companies as protection from volatile market moves. In the case of the airline industry, it involves locking in the price to buy or sell fuel in the future.

Read More Airlines pocket record $38B from extra fees

In its first quarter results released in late July, Ryanair revealed that 90 percent of its full-year 2016 fuel was hedged at approximately $91 per barrel and that it had "taken advantage of recent lower oil prices" to increase its 2017 full-year fuel hedging to 70 percent at an average rate of just under $66 per barrel.

This is good news for travelers across Europe as it should translate into lower air fares, said O'Leary.

"I think it's incumbent certainly on the airline industry, you know, to lock away those kind of cost benefits," O'Leary said, adding: "As with many European airlines, we intend to pass that onto incredibly low fares this winter."

"It's one of the reasons that at Ryanair, we're predicting the mother and father of all fare-wars this winter," he added.

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