That crisis is also an opportunity is best known by Ryanair’s CEO Michael O’Leary, who used a hedging strategy to protect his fuel price, which is why he now hints at lower ticket prices for his passengers, due to the drop in oil prices on the global market.
O’Leary stated that Ryanair extended its fuel price protection contracts for the next two financial years. “We and our passengers will be very significant net beneficiaries of the dramatic fall in oil prices,” he said.
He protected most of his fuel needs
Namely, the price of crude oil, due to Washington’s turbulent customs policy, fell below 60 dollars per barrel at the beginning of April, and this airline has secured through contracts most of its remaining fuel needs until the end of the 2027 financial year.
Why hedging is important for airlines
What is hedging in air transport? It is a strategy that airlines use to protect themselves from unfavorable changes in fuel prices – which is one of their biggest costs. In order to stabilize expenses and minimize the risk of price increases, airlines use various financial instruments (most often forward contracts, options, or swaps) to “lock in” the fuel price in advance. That way, even if the market fuel price rises, they pay the previously agreed (lower) price.
According to the so-called forward contract, the company agrees to buy a certain quantity of fuel at a fixed price in the future.
If so-called swap contracts are concluded, then an exchange is made from a variable fuel price to a fixed price for a certain period.
Airlines use hedging as a key strategy to reduce costs, buying most of their fuel at a pre-agreed price with the expectation that prices will rise, thereby achieving savings.
