Soaring fuel prices could see airlines ground flights in off-peak season

RYANAIR and Aer Lingus will ground aircraft this winter to combat rising fuel costs as Irish businesses are warned closures and job cuts are looming.

Merrion stockbrokers said assuming oil prices remain around $127 a barrel, few airlines in the western world will be profitable with fuel costs at this level without material increases in fares.

It said this is a significant development for the industry, and as a result it expects airlines such as Ryanair and Aer Lingus to reduce capacity in off-peak season as such frequencies will be loss-making, even on a marginal cost basis.

Merrion said it expects Aer Lingus to ground 10% of its capacity in the next two winters. Beyond that, it expects a significant slowing in the orders for new aircraft.

Ryanair, says Merrion, has the flexibility and capability to react effectively in this climate.

“Given its flexible cost base and strong management track record, we expect Ryanair will be at the forefront of moves to cut low-season capacity to help its yield management,” it said.

The airline is strongly placed to be one of the quickest to recover and it expects its earnings will bounce back strongly next year.

Meanwhile, ISME, the representative group for small businesses said small firms are being crippled by rising oil costs.

The association said it is receiving several calls on a daily basis from businesses outlining their concerns at increasing fuel and energy prices, with several indicating that if the situation continues, they will have no option but to let people go.

ISME chief executive, Mark Fielding said: “It is conceivable that the price of oil could hit $200 a barrel over the next number of months, which would be catastrophic to Irish businesses, particularly in light of our huge dependency on imported energy products.”

Mr Fielding has called on the Government to ring fence from June 1 any additional revenues received from duties due to increasing oil costs.

He said this fund should be used to cushion businesses against the impact of rising fuel costs and carbon taxes.