Cheap Airline Tickets Won't Be Around for Long

Chris Bryant
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Cheap Airline Tickets Won't Be Around for Long

Cheap Airline Tickets Won't Be Around for Long

(Bloomberg Opinion) -- Greta Thunberg probably isn’t a fan of Ryanair Holdings Plc. The 16-year-old Swedish activist took the train to the World Economic Forum in Davos in January to castigate the rich and powerful adults there for failing to tackle the unfolding climate emergency (most of them had arrived by plane).

Three months later Ryanair was revealed to be one of Europe’s 10 biggest sources of pollution after its carbon dioxide on intra-European flights emissions jumped 7% last year. The other nine sinners are coal power plants.(1)

Figures published by the airline this week suggest Ryanair’s environmental record isn’t likely to improve in a hurry. The Irish carrier expects to carry 153 million passengers in fiscal 2020, or 8% more than the financial year that ended in March. By 2024, it’s targeting 200 million yearly passengers – four times as many as in 2007. This rapid growth will no doubt result in even more carbon emissions.

Regardless, the famously cantankerous Ryanair used this week’s investor presentation to declare itself “Europe’s greenest, cleanest airline.” And its boast isn’t entirely misplaced: Its environmental record is better than commonly understood. Even so, the fight against global warming may be the biggest threat to its ambitions.

To avoid an even more severe climate emergency, people will either need to cut back voluntarily on flying or the cost of air travel will have to increase to thin out passenger numbers.(2) Either way, the budget airline business model that brought Ryanair to prominence looks vulnerable.

Fortunately, chief executive Michael O’Leary seems to have abandoned a long-held and extremely irresponsible position that man-made climate change isn’t real. Regardless of O’Leary’s uncharitable views about “eco-warriors” (his term, not mine), his company does plenty that’s commendable from a carbon efficiency perspective.

This is doubtless driven by financial concerns. Fuel is Ryanair’s biggest expense, so using less of it is good for the bottom line as well as the environment. The company’s absolute emissions are lower than European peers that fly more intercontinental routes. 

Its emissions per kilometer for each passenger are also comparatively low. That’s because Ryanair flies point-to-point routes (rather than long journeys that connect via airport hubs), crams lots of seats into its all-economy cabins, and prides itself on selling almost all of its tickets. Furthermore, O’Leary invests heavily in new fuel-efficient aircraft – although his big orders of the Boeing 737 Max aren’t helping right now.

None of this means that Ryanair is in the clear on climate change. Unlike electricity generation or the autos industry, where solar and electric cars are displacing dirty coal and combustion engines, technology won’t solve aviation’s emissions problem any time soon. Zero-emission passenger jets will remain a dream for decades and the uptake of low-carbon fuels remains limited because of their expense. The airline sector’s absolute carbon dioxide emissions will probably keep rising.

Today the industry accounts for 3.5 percent of European Union greenhouse gas emissions, but those emissions are expected to increase by at least one-fifth by 2040. Not a good look. 

The world’s airlines have agreed to cap their net carbon emissions at 2020 levels and cut them in half by 2050 compared to 2005 levels, but that involves paying for questionable offsetting projects. Ryanair is also obliged to purchase carbon credits under the EU’s emissions trading scheme. These carbon abatement costs have risen. Analysts at Berenberg anticipate a 150 million euro ($167.5 million) financial hit from them in fiscal 2020, or 14 percent of its operating profit estimate.

Ryanair has plowed on with breakneck expansion regardless of the extra costs. But it’s entirely possible that the consumer tastes that propelled its rise over the past three decades will reverse.

In Scandinavia, there’s already a growing movement to boycott flying in favor of staying home or cleaner forms of travel such as trains. The ailing travel operator Thomas Cook Plc blames this in part for its disappointing financial results. No wonder O’Leary says he doesn’t plan on growing much in that region. 

Absent more widespread social change, it will be down to governments to force Ryanair and its peers to charge more to curtail unnecessary air travel. Last year, Ryanair’s average fare was a meager 37 euros because of an industry-wide capacity splurge and price war. Its aim seems to be to keep fares  low to drive rivals out of business; good for passengers, but not necessarily the environment.

Currently, Europe’s airlines don’t pay tax on jet fuel and tickets are often exempt from sales tax too, another reason why Ryanair’s fares are so cheap. The Netherlands and Sweden have, however, introduced new aviation taxes and several countries are lobbying for an EU levy. This week, France’s president Emmanuel Macron threw his weight behind a European kerosene tax.

Of course, governments remain mightily inconsistent when it comes to air travel. Many, like the U.K., are still hellbent on adding runways. And if aviation taxes rose, Ryanair would probably still fare better than rivals because of its lower operating costs. Its growth and profit potential would take a hit though. O’Leary’s former refusal to believe in climate science might yet come back to haunt him.

(1) The findings of that report only cover flights within the European Union, which Ryanair has proportionally more of than some legacy carriers.

(2) Ryanair passengers can voluntarily purchase carbon offsets but these totaled only about euros 1 million in the past 12 months.

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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.

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