Flights Across Europe Could Cost Soar Next Year as Airlines Face Fuel Crisis, Ryanair CEO Warns

European travelers could face airfares as much as 20% higher in 2027 as the war with Iran drives up jet fuel prices, with Ryanair's CEO warning that airlines are approaching a major increase in operating costs when existing fuel contracts expire.

Michael O'Leary said Monday that ticket prices across Europe could rise between 10% and 20% next year as carriers struggle to absorb higher fuel expenses. The warning came as the Irish budget airline reported a 15% decline in first-half profit despite carrying more passengers.

"I believe you're going to see airfares rise next year across Europe by 10%, maybe even 20%," O'Leary told CNBC in an interview Monday.

The airline expects its annual fuel bill to increase by approximately €2 billion ($2.24 billion) in the financial year ending March 2028, based on current forward prices. Even substantial fare increases are unlikely to fully cover that additional expense, according to Ryanair's latest earnings release.

Fuel hedging has protected the airline from much of the recent increase in energy prices. Ryanair secured 80% of its fuel requirements for the financial year ending March 2027 at approximately $67 per barrel, allowing it to purchase most of its fuel at prices agreed before the latest surge.

The remaining 20% was exposed to market prices, which doubled to approximately $130 per barrel during the six months ended September, according to Ryanair's financial results. O'Leary told CNBC that jet fuel was trading at around $170 a barrel on Monday, highlighting the higher costs airlines could face as existing fuel contracts expire.

Ryanair has secured only 25% of its fuel requirements for the following financial year at approximately $95 a barrel, leaving a much larger share exposed to price changes.

The impact is already visible in the airline's financial results. Profit after tax fell to €2.15 billion ($2.41 billion) in the six months ended September 30, down from €2.54 billion ($2.84 billion) a year earlier. Revenue increased 3% to €10.08 billion ($11.29 billion), but operating costs rose 10% to €7.69 billion ($8.61 billion).

Passenger numbers climbed 6% to 125.8 million, while average fares declined 4% to €55.70 ($62.38). Revenue per passenger fell 3%, with additional income from baggage fees, reserved seating and other services remaining broadly unchanged on a per-passenger basis.

The conflict in the Middle East also affected booking patterns, with Ryanair reporting greater customer hesitation and passengers making reservations closer to their departure dates.

Higher fuel costs have already prompted the airline to scale back its winter flying schedule. In September, Ryanair lowered its full-year passenger target from 216 million to 214 million, reducing planned capacity during the colder months. It now expects traffic between November and March to remain broadly unchanged from a year earlier.

O'Leary said expanding flights while purchasing expensive, unhedged fuel made little financial sense. The reduced schedule allows the airline to limit its exposure to higher prices during a period when demand is traditionally weaker than in summer.

Ryanair is also reviewing its operating expenses, including staffing arrangements and airport charges, to prepare for the expected increase in costs.

The company said the review could involve temporary pay freezes when labor agreements come up for renewal, lower crew staffing ratios and greater use of artificial intelligence to improve efficiency in operational and administrative functions.

Despite the current pressures, the airline plans to carry more than 220 million passengers in its next financial year, helped by the additional aircraft.

The company's financial position remains relatively strong despite the profit decline. Ryanair reported €2.6 billion ($2.91 billion) in gross cash at the end of September after making €1.3 billion ($1.46 billion) in debt repayments, spending €800 million ($896 million) on capital investments and returning €400 million ($448 million) to shareholders.

The airline also announced a new €800 million ($896 million) share buyback program scheduled to begin in February 2027, alongside an interim dividend of €0.273 ($0.31) per share.

For the current financial year, Ryanair has not provided a full-year profit forecast, citing uncertainty over fuel prices, the Middle East conflict and booking patterns.

The company said demand for the October-to-December quarter remained strong, with fares trending modestly above last year's levels. However, the final result will depend heavily on bookings made close to departure, particularly around school holidays and Christmas.