Chinese Deals & Jet Fuel: U.S. Ambassador to China & RyanAir CEO 5/18/26

22:06Michael O’Leary:and the third communique says is that the U.S. does not support independence. So that's already been the strategic ambiguity.

22:12David Perdue:We don't support independence, but we don't want China to militarily or through coercion to change that independence. See why it's so ambiguous?

22:26Michael O’Leary:Well, I don't see that as ambiguous. I know for decades they've called it strategic ambiguity, but to me it's very clear. We're not choosing sides. We want the people of Taiwan and the people of China to decide the future. And so we just don't want it to be coercive and we don't want it to end with a kinetic action. And I think President Trump this week made it very clear that his policy or the United States policy had not changed. And he accentuated the clarity around that. Now, he also heard President Xi out. And this, I thought, was very constructive. He allowed President Xi to talk to him at length about how they see the issue.

23:02Michael O’Leary:And I think that was very constructive because President Trump, again, established our position and our past practice with regard to Taiwan and arms sales, for that matter.

23:13David Perdue:And it's never been the United States's policy to defend Taiwan militarily, like Joe Biden said. And like, I don't know what that was in some type of brain fart. Go ahead.

23:24Michael O’Leary:He made that statement three times on some trip over here. But no, it's never been our policy to defend Taiwan. That's not what the Taiwan Relations Act says. That's not what any of the communiques say. And it reserves the right that we will, you know, try to help maintain peace and stability on that issue.

23:46David Perdue:Ambassador, though, I think the question becomes if, in fact, there is, quote, unquote, coercion, and the question is, is the coercion kinetic or something else? What role do you think the United States plays in that context?

23:59Michael O’Leary:Well, we don't have a peace treaty. And so the Tyler Inflammations Act is the one that establishes a one-china policy, not a principle. But that is to be determined by the president and the Congress at that time. I mean, I think at this point, our desires have been made very clear and consistent over the last five decades.

24:18David Perdue:Do you think that as we try to gain some kind of what might describe as chip independence, this is now the United States independence from Taiwan to some degree, that it makes Taiwan less strategically important over time if, in fact, that can be accomplished, meaning that we move more chip manufacturing to the U.S.? Some people, by the way, say that's not even possible in terms of that kind of independence, truly, for something like five to 10 years at the pace that we're going.

24:48Michael O’Leary:Well, we have some challenges. We have rare earth element independence and magnet independence. I mean, you know, we've allowed these key strategic industries to put us in a single source dependency that's not comfortable with anybody. I just met with all the diplomatic staff here in Beijing from all of our allies around the world. and this is a number one topic with them. And so I believe that what President Trump has done is establish a priority to reestablish our independence. And this is something the Chinese are really struggling with. They've actually issued some edicts recently and some more constraints on our trade and so forth.

25:24Michael O’Leary:We're not getting magnets the way we should have based on the Busan Agreement. President Trump brought that up and President Xi Jinping agreed that we would address that. With regard to the defense of Taiwan, That is something that the American people, through their elected officials and the administration at the time, will have to make a decision at the time. What we're trying to do is encourage China to find a peaceful solution to this issue around Taiwan.

25:49David Perdue:Tell me about that question I asked earlier. In terms of bargaining, that's another thing that went back and forth. Oh, yeah, Xi's got the upper hand. No, no, President Trump has the upper hand. And they still export a lot. And that's good and bad for China. They want to be consumer driven. And, you know, the trade deficit with the U.S. is way down because of still large. No one would ever say 200 billion was small, but much less, Senator. Are they feeling the pinch from some of the policies that President Trump has put on there? I know real estate isn't great.

26:29Michael O’Leary:There's no question that over the last decade, they've developed some headwinds. I mean, how smart was the one-child policy? And that demographic catastrophe is beginning to hit home here now. If you look at what we've done on trade, I mean, our trade deficit is down 30 % over the last year. So I believe the real estate debacle that they have here has not been rationalized the way ours was in 2008, 2009, and 2010. That is something that's hovering over them now. the one-child policy in the demographic bubble, plus unemployment among young workers. The college-educated workers here is high. So, yeah, they have headwinds.

27:08Michael O’Leary:But I think right now there's no debate about who won this summit. It wasn't a contest. What we're trying to do is find a way to develop a future where China and the U.S. can live productively together and have watched both of us prosper. That's what Xi Jinping said in his opening remarks, was they don't believe, he doesn't believe in the Thucydides trap. He thinks that there's a way forward for both prosper and grow.

27:35David Perdue:In terms of the strait, that seemed good. It seemed, you know, China agreeing that we don't want Iran to ever have a nuclear weapon and the strait needs to be open. But there's no concrete offer of assistance. And they could, couldn't they? And don't they need that strait to be open? How long can they go? Where are they getting their oil? Now they got a lot of stockpiles, I guess.

27:57Michael O’Leary:Well, they get 48 percent of their oil through the strait, 15 percent from Iran and 33 percent from the Gulf states. So, yeah, they have a high incentive to see this straighten out. And they they lobbied us for that in these meetings. President Trump encouraged them to get involved. He said, we don't need your help militarily, but we need Iran to negotiate in good faith. Look, we've got agreement there. China and the U.S. agree that there should be no nuclear weapon in the hands of the Iranians. And the second thing is no tolls in the strait and that the strait should be open. But, you know, I think at this point, it's all about the negotiations.

28:34Michael O’Leary:And President Trump said very clearly he's prepared to go to the next step. He doesn't want to do that, but he's prepared to do that if the Iranians don't come back to the table and deal straight up on this issue. Last question.

28:46David Perdue:They don't have elections, but he does need, President Xi does need to have support, obviously, of the CCP. And there's, I don't know, a lot of, we have the 250 if they've got some things coming up as well. Does he, President Xi, in your view, have the same concerns about doing what is best for his people? or is it all about maintaining power for the CCP? And in other words, President Trump has to care about midterms. President Xi, you know, if the GDP, personal GDP of China is still$13 ,000 versus$90 ,000 here, that's not, you know, he doesn't necessarily have to answer to those types of concerns, does he?

29:35Michael O’Leary:No, and I think therein lies a difference in how America treats our long-term strategy versus China. I mean, they have 2049, their 100-year anniversary, clearly in sight. It's only 25 years from now. And so President Trump is here for two and a half more years. He's in a hurry to get some things done. I believe Xi Jinping, though, has made the calculus that he can deal with President Trump. He does not know who's going to come after that. And there are some things that need to be dealt with on trade in Taiwan, the Middle East, all the Russia energy. I mean, we think we have a huge opportunity to sell them LNG right now.

30:10Michael O’Leary:And I think there's a door that's beginning to open in that regard. So I think the accountability issue is one that we just don't know in China long term. You know, this this person, Xi Jinping, is in charge. He's in control. You know, Communist Party only has six percent of the population of China are members. but they certainly have control over the other 94. And look, right now, this economy is not going to collapse, Joe, but it is certainly going to muddle through, not unlike maybe what we did after our 08 and 09 issue. So he is clearly in charge here. But I think this meeting went a long way to having President Trump and President Xi understand each other more clearly on some of these sticky, sticky issues.

30:53David Perdue:6%, not a big number unless you multiply it by 1.4 billion. Right. And then it becomes a pretty big number. Anyway, Ambassador Perdue, great to see you. Best to Mrs. Perdue. And I hope to see you again soon.

31:11Michael O’Leary:Still to come on Squawk Pod, the jet fuel crunch in Europe with the continent's largest low-cost air carrier, Ryanair. CEO Michael O 'Leary never holds back.

31:22David Perdue:The risk in Europe, though, was they were worried in the last couple of months there'd be supply disruptions. So they get some of their oil from the Middle East. Most of that has switched to supplies coming from the Americas, Norway, West Africa. So the risk of fuel disruption has gone away. But much higher oil prices are going to be a real challenge through the remainder of this summer in Europe.

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33:18David Perdue:Welcome back. This is Squawk Pod. Up and enter. Q. You're watching Squawk Box on CNBC. I'm Andrew Osorkin, along with Joe Kern. Europe's largest airline group, Ryanair. Earnings out this morning. Join us now to talk to companies' results, fuel costs, Boeing and more, as Ryanair Group CEO Michael O 'Leary, the Dublin-based budget airline group, is Boeing's biggest customer outside of the U.S. Good morning. Good morning, Joe. I don't feel qualified to fill Becky's seat here, but I'll do my best. Just do your best. Considerably older and a lot less attractive. Certainly not as, well, actually, we can't say things like that anymore.

33:57David Perdue:You look great. You look great. I find you very attractive. How bad is this likely to get in terms of jet fuel? I don't think it's bad at all. I mean, we've just announced record full-year results, so we'd carried 208 million passages. We declared a profit at$2.26 billion. Oil prices have spiked hugely, but we're very well hedged. We're 80 % hedged out to mark 27 at$67 a barrel. The spot price today on Jed is about$150 a bar. So we're in great shape. Let's have a good CEO. Whose idea was that? The CEO or the CFO? You've been hedging all along. Yeah, we've hedged all along, generally speaking. It's the advantage of having a strong balance sheet.

34:36David Perdue:So we're in pretty good shape. Our competitors are in real trouble. Most of them are only hedged until the end of September. The risk in Europe, though, is they were worried in the last couple of months there'd be supply disruptions. So they get some of their oil from the Middle East. Most of that has switched to supplies coming from the Americas, Norway, West Africa. So the risk of fuel disruption has gone away. But much higher oil prices are going to be a real challenge through the remainder of this summer in Europe. But thankfully, Ryanair, because of our hedgy, we should be in pretty good shape.

35:02David Perdue:Is your sense that the other airlines that you worry about could get in trouble, that they do want, do they either go bankrupt or are you worried that they just start cancelling flights left and right because it's too expensive to even be in the air or what? Andrew, they're already cancelling flights. You've seen a lot of competitors take 5%, 6 % of capacity out in April, May, and June. I mean, I think if oil prices remain up at these levels, if the Strait of Hormuz remains closed until, say, September, October, there's going to be airline bankruptcies in Europe like you had Spirit over here in the States.

35:30David Perdue:We have airlines over there that are in the same kind of poor shape. They have low fares but high costs and never can't make money. I mean, I don't think anybody really believes this is going to continue on to the end of the summer. You have Memorial Day coming up here at the end of May. The midterms are kicking off. I mean, you know, I think the administration is going to have to declare a win and get the hell out of there. Policy mistakes just across the European Union with energy. I mentioned that to you. Is it glaring to you at this point? Is it Germany? No, no, it's pan-European, Joe. I mean, we have spent the last 20 years taxing the hell out of European air travel.

36:06David Perdue:We have an environmental tax about seven euros a ticket now only on intra-European flights. Is that for carbon dioxide? Oh, yeah, saving the planet and the hedgehogs and whatever else it was. But we exempt all the long-haul flights. So the Americans, the Chinese, the Gulf carriers are all exempt. We're just taxing the hell out of the poor dumb Europeans going on their two weeks holidays to Spain, Portugal, Italy and Greece. The airlines across Europe are calling for an abolition of that ETS. It is the dumbest taxation known into humankind. Ursula von der Leyen, who's the, I call her useless. She's the president of the European Commission.

36:39David Perdue:Useless von der Leyen. Useless von der Leyen. She's been talking about making Europe more competitive for about the last two years. Of course, she hasn't had an idea, no initiative. She should start by abolishing environmental taxes on air travel. The Swedes now get it. The whole Magritte Thunberg flight shaming, they've abolished their aviation tax. And we're growing very strongly in Sweden. Europe needs to do likewise. Do Europeans ever look at Germany and wonder about the leadership there with what's happening with? I don't think much is the leadership. I mean, it's just the whole... Should they be helping with Iran or with the strait?

37:11David Perdue:Yahoo, Namajid, political issues. You know, look, we all want an early solution to the strait. You know, it would have helped, I think, if the administration here had consulted more with the Europeans before they went in. Right. You know, but it is in everybody's interest to get the straits from was reopened. Europe's jet fuel doesn't come from the Middle East, so we're, if in that sense, but high oil prices is not in the US, is not in the good for the US economy, it's not good for the European economy. We need to get this thing fixed. I mean, I disagree with Trump on tariffs. I fundamentally disagree with, you know, Trump on a few things, but one thing he's right on is Europe has been weak on defense spending.

37:49David Perdue:NATO needs to significantly up its game on defense spending. The only way Europe can fund that is by getting to a much more competitive economy. And taxing things like over low-fair air travel is not the way you get to a competitive... That's your thing, yeah. You're just taxing ourselves. So you're hedged, but the country of Europe is not hedged on you. Could there be some recessions in some of the countries that are less... Again, as you know, it depends on how long this goes on. I mean, if oil stays at$150 a barrel, you know, for... through to September, through to the end of this calendar year.

38:18David Perdue:We're all going into recession. The US, Europe, everybody. I would be more optimistic. I think it will, you know, there will be an end brought to the, or the Straits will reopen. Oil prices will trend back downwards again, I think by the time we get to the end of the summer. But what the hell do I know? I'm only some dumb schmuck working for an airline. You didn't see any result, any pressure yet from demand destruction from this. No, funny enough, because we're coming into the peak travel season in Europe, that you'll see. We're seeing, there's a little bit of nervousness out there into June, July, and August.

38:51David Perdue:We're having to price a little bit down to keep bookings going, but close in is very strong. Do you see a distinction? So one of the things that's fascinating to watch in the U.S. is that these U.S. airlines are killing it in the front of the plane. Yep. Killing. Back of the plane is a more complicated story. Is that the same story in Europe or is that a completely different story? I mean, it is a similar story. I mean, one of the things, Because one of the fundamental issues in Europe and the U.S. is we have much lower cost carriers. Across the board. Across the board. We wipe the floor with Southwest over here.

39:22David Perdue:I mean, our cost per seat is about$40. Southwest cost per seat is about$120. So we're much lower cost. Is that a labor story? What is that? It's an efficiency, bigger aircraft gauge type. We just generally, we don't distribute to travel agents. We're just much more ruthless about being lower cost. But there is a similar story with the legacy carriers in Europe. because the Gulf guys are all grounded. The legacy guys are taking all the connecting traffic, going to Asia, going to the US. I mean, the Gulf carriers are in real truck. I mean, essentially they're grounded. The Lufthansa's, the BA's, the Air France's are taking all that big long haul connecting and that is pricing up.

39:58David Perdue:So they're doing very well on the long haul stuff. But on the short haul piece, Ryanair is wiping the floor with everybody because we have such a cost advantage. We're so well hedged. We will pay down the last of our bond. I have a 1.2 billion bond we pay down next week. I'm completely debt free now. with a fleet of 650 aircraft. So we're still growing very strongly in Europe, but there's lots of flaky, low fare, but not so low cost carriers like the Spirits. There's a few of those in Europe. Can you speak to this? And it's really because we have a U.S. audience that's going to understand this.

40:27David Perdue:Do you think that in Europe there's so much more competition than there is in the U.S.? Do you believe, I mean, we were just having a big debate a couple of years ago whether Spirit, before it went bankrupt, should have been acquired by JetBlue, wasn't allowed to happen. Yeah. But there's all sorts of debates even today about whether American, for example, should merge with United. I don't think that's in the offing. But how do you see competition from your vantage point in Europe where there seems to be a lot of it compared to here? There's not that much anymore in Europe, Andrew. I mean, Europe is inexorably migrating towards four large carriers.

41:00David Perdue:You have over here United, Delta, American, and then you have Southwest, the big low-cost carrier. Europe is going the same way. So you'll have the three big legacy carriers, the BA family, the Air France, KLM, and La França. And then Ryanair is going to be the kind of big, dominant, low-cost carrier. And the other guys who are stuck in the middle, the EZJS, the Wizards, the Baltic Airs, are either going to get taken out, which I think, well, they'll be M &A or they'll fail. And that's inevitable. So Europe runs about 10 years behind the U.S. The U.S. had the first, the kind of, the, were the first to deregulate.

41:38David Perdue:One of the few economic policies that Carter was successful with. But first, Europe copied that US success, but we're coming to the end of that now. And therefore, we're going to fundamentally be the only low-cost carrier in Europe. But the good news is we've ordered 300 aircraft from Boeing, the MAX 10s, which we hope to take first delivery of in the spring of 27. That gives us growth to go from 200 million to 300 million passengers a year over the next eight years by keeping airfares low in Europe. And the great advantage in Europe is the rest of them are dumb and high fare. So all we got to be is not so dumb and much lower priced and we'll win.

42:10David Perdue:Wow. Thank you, Michael. While Rory McIlroy wins the British Open. Yeah, you thought Rory, he couldn't find the driver. How did the English win the PGA? How the hell did that happen? That galls you, doesn't it? I thought Harrington or McIlroy were going to nick it again. Harrington, he can play on the senior tour, can't he? He is on the senior tour. That's what I mean. And he was one under. I saw him chip in an eagle and another. He's one of those rare Irish guys, you know, wasn't an alcoholic. He's kept himself fit. He's kept himself kind of... But it's rare. Yeah, yeah. He's kept himself fit and active.

42:41David Perdue:You're Fontaine's DC fan? We do. Hey, you're very good on the old rock bands. You know what DC stands for? District of Columbia, I presume. Dublin City. No way. Yes. What? Yes. I thought it was some kind of U2 or a concrete American. Fontaine's is named after the Godfather character. Fontaine. There should be Fontaine's District of Columbia. No. Oh my God. Okay. U2 are making a new album. They're on the way back. And that is Squawk Pod for today. Thanks for listening. Thanks for starting your week with us here. Squawk Box is hosted by Joe Kernan, Becky Quick, and Andrew Ross Sorkin. Tune in weekday mornings on CNBC at 6 Eastern.

43:20David Perdue:To get the smartest takes and analysis from our TV show right into your ears, please follow Squawk Pod wherever you get your podcasts. Have a great Monday.

43:30Michael O’Leary:We'll meet you right back here tomorrow.

43:34David Perdue:We are clear. Thanks, guys.

44:04David Perdue:Thank you.