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Ryanair hit hard by fuel costs

Stephen Beard Jul 28, 2008
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Ryanair hit hard by fuel costs

Stephen Beard Jul 28, 2008
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Stacey Vanek-Smith: Fuel prices are also the culprit being named for big losses at Ryanair. The low-cost carrier says earnings dove 85 percent last quarter.

Ryanair adopted its business model from Southwest Airlines, which actually managed to turn a profit. But as Stephen Beard reports, Ryanair took the low-cost approach a step too far.


Stephen Beard: Ryanair says it could make an annual loss this year. Like most carriers, it’s been hit by the rising price of fuel. But as one of the world’s top budget airlines, it’s been harder hit than most. Fuel accounts for almost half its operating costs, and so has a bigger impact on the bottom line.

Ryanair pushed the low cost concept further than anyone else. But, says David Roberston of the Times of London, it made a fundamental error: One of the many costs it cut was the cost of hedging, or insuring against the rising price of fuel:

David Roberston: They’ve gone in to the last few years with no hedging, or very minimal 5 percent of their requirements. Which means that they are almost entirely exposed to oil prices of $130, $140, $145 a barrel.

Southwest didn’t make that mistake. Because of hedging, it’s effectively cut the cost of its fuel in half.

In London, this is Stephen Beard for Marketplace.

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