Ryanair to lose 300m euros from oil insurance trades gone bad

[LONDON] Ryanair Holdings Plc predicted a 300 million-euro (S$465 million) hit for the fiscal year that just ended because of wrong-way bets on fuel hedges.

Before the extra costs, profit for the year ended March 31 will come in as low as 950 million euros, the bottom end of its previous estimate, the Irish low-cost carrier said Friday. With its planes mostly grounded for April and May, Ryanair said it's impossible to predict how results will shape up over the coming months.

"Given the continued uncertainty on the impact and duration of the Covid-19 pandemic, it is not possible to give FY21 guidance at this time," Ryanair said in a statement.

A plunge in oil prices is usually good for airlines because jet fuel is their biggest expense. Carriers like Ryanair that rely on hedging positions to protect against future price increases have found those insurance policies are now costing them money. The company locked in purchases at prices set much higher, before the free-fall in crude that was fed by the virus and a clash between major oil producers.

It's one more challenge for an airline industry already on life support after measures to protect against the spread of the coronavirus caused an abrupt halt to travel. Ryanair said it's now operating fewer than 20 daily flights, versus a normal schedule of more than 2,500 per day.

The company said its balance sheet remains strong, with cash and equivalents of 3.8 billion euros, and 327 planes unencumbered and debt free. To conserve cash, Ryanair said it's deferring capital investments, suspending buybacks and cutting management pay. The company said it's in talks with unions to access government payroll-support across its European footprint.

"We expect that the airline could weather a downturn longer than many peers in the European space," Daniel Roeska, an analyst with Bernstein, said in a note. "The company could last possibly until around the end of the calendar year on current resources."

Ryanair shares were little changed at 8.30am in Dublin.

Mr Roeska said the balance-sheet update was a positive, but he wanted more information on the low-cost carrier's exposure to ticket refunds and the unearned revenue balance for flights that will be taken once travel resumes.

The hedging loss likely will hurt Ryanair's cash position in the early part of fiscal 2021 because it requires payments to counterparties, he said.

Oil prices have been extremely volatile after plunging to an 18-year low on Monday. Prices ranged from US$25 to US$30 a barrel after a record surge on Thursday, following US President Donald Trump's tweet that he expected global producers to slash output by 10 million barrels or more.

BLOOMBERG