Ryanair, Easyjet, and just say no to a Financial Transactions Tax
Those with long memories will recall the campaign to have a Financial Transactions Tax. Something we were vehemently opposed to no doubt because we’re neoliberals or something. The idea was to have a miserly - say, 0.1%, or 0.05%, that sort of amount - tax on every financial transaction. The claim was that this would not affect “real” trade and would only reduce the amount of speculative froth in the marketplace. Which would, according to the proposers, be good. Because, well, speculative froth and all that. Just capitalists playing with money, see?
Except speculative froth does have a point:
Ryanair believes its fuel hedging policy will shield the carrier from the immediate impact of the Middle East conflict — and insists that European operations are not currently facing a fuel shortage.
The airline says its “conservative” strategy — with 80% of its jet fuel for 2026-27 hedged at $668/t — will “insulate” its earnings.
IATA puts the European average price at around $1,300/t.
Ryanair hedged its exposure to changing fuel prices and so benefits as against a world in which it did not. At the cost, obviously, of not benefiting if fuel prices had fallen and or the premium it paid to do such hedging. The people who have lost out here are the speculators - the capitalists just playing with money.
EasyJet is facing a potential takeover from US private equity giant Castlelake as the low-cost airline grapples with the fallout from the Iran war.
….
EasyJet said it was raising air fares to counter the impact of surging fuel prices in the wake of the closure of the Strait of Hormuz, which has disrupted 20pc of the world’s oil flow.
While easyJet has fixed the price of more than 70pc of its fuel needs until September, its kerosene bill still rose by £25m in March. This makes it one of the least-hedged London-listed airlines.
Easyjet has done less hedging and finds that the risks it took are now coming home to roost.
Yes, obviously, there is more than just the hedging strategy at stake here. But it is still a nice illustration of the value that those speculative markets allow. Which is the value of risk transference. Rather than it being the airline itself facing the risks of geopolitically driven changes in fuel prices it is the speculators. It’s those capitalists playing with money who see their wallets bleeding out. Airlines can carry on being airlines and it is those who specifically sought the risk - and potential rewards - of speculation on fuel prices who carry that risk. The world is a better place as risk is allocated to those who seek it and taken from those who wish to shrug it off.
The FTT would - by design - kill off that speculative froth which allows the risk transfer. Which is why we should just say no to an FTT. Why would we want risk to sit with those who do not want it instead of being sent off to those actively interested in playing with it? And, obviously, what is wrong with the idea that when risk actually arrives it’s the wallets of the capitalists just playing with money that suffer the exsanguination?
Tim Worstall