Ryanair Warns European Fares Will Rise 10 to 20 Percent Next Year as a 2 Billion Euro Fuel Bill Looms

Europe's biggest low-cost airline has told passengers to expect dearer tickets. Ryanair's half-year profit after tax fell 15 percent to 2.15 billion euros in the six months to 30 September, Business Insider reported on Monday, and chief executive Michael O'Leary said the airline expects its fuel bill to rise by about 2 billion euros in the financial year starting next April as its cheap hedges expire.

O'Leary told CNBC he believes air fares across Europe will rise by 10 percent, and perhaps 20 percent, next year, AirlineGeeks reported. Covering Ryanair's own gap would take a fare increase of roughly 20 percent, or about 10 euros a passenger, and on the earnings call he said he was not sure the airline would get that far.

Why is Ryanair's fuel bill rising now?

Hedging has shielded the airline so far. More than 80 percent of its fuel is locked in at about $67 a barrel until next March, while the unhedged remainder has roughly doubled in price to around $130, as high oil prices linked to the Middle East conflict feed through to jet fuel. From April, far less of the airline's consumption is covered, which O'Leary described to CNBC as a cost cliff. Average fares in the half actually fell 4 percent to 55.70 euros while passenger numbers rose 6 percent to 125.8 million, according to the results summary, with revenue up 3 percent to 10.08 billion euros.

What is Ryanair doing about it?

The airline is reviewing every cost line. Temporary pay freezes for staff are under consideration, though no duration has been set; the group employs more than 27,000 people. Ryanair also plans to lower its crew-to-passenger ratio and to expand its use of artificial intelligence in operations and support functions. It has cut its traffic target for the current year from 216 million to 214 million passengers, which means no growth this winter, and intends to shift new capacity toward airports with lower fees.