Fare cuts to put pressure on Ryanair profits

Ryanair reduced fares over the three months to the end of June (GETTY IMAGES)

Low cost airline Ryanair today said full year profits would be impacted by aggressive action to slash fares to attract cash-strapped fliers.

The group - headed by flamboyant boss Michael O'Leary - said annual net profits were now expected at the lower end of market forecasts for between 200 million euros (£172.8 million) and 300 million euros (£259.2 million).

Ryanair reduced fares by 13 per cent on average over the three months to June 30, which saw revenues come under pressure, although significantly lower fuel costs helped profits climb almost seven-fold.

Ryanair, which last week announced it was cutting its winter services out of Stansted by 40 per cent, reported first quarter net profits of 136.5 million euros (£118 million) up 550 per cent thanks to plunging fuel costs.

Its revenues fell slightly, down 0.3 per cent to 774.7 million euros (£669 million).

But passenger numbers rose 11 per cent and Ryanair also grew "ancillary" revenues - such as extra fees for checked-in baggage and credit cards - 13 per cent to 165.3 million euros (£142.9 million).

Mr O'Leary said: "Thanks to a 13 per cent reduction in average fares we grew traffic by 11 per cent, which was a robust performance in a deep recession, when many of our competitors were cutting flights, losing traffic and reporting increased losses."

Its fuel costs were 42 per cent lower than last year, when the oil price bubble hit airlines hard.

Ryanair has now taken out hedging - effectively insurance - to fix fuel prices for the year ahead, with aims to see annual savings of 460 million euros (£397.3 million).

The Dublin-based airline, which launched in 1985 with a single 15-seater aircraft, is hoping its "no frills" model will help it take advantage of the consumer drive for lower prices.

The industry has been hit by a slump in global tourism amid the recession and consumer spending decline.

Rival British Airways is fighting a self-proclaimed "battle for survival" and is also reporting first quarter figures this week, which is expected to show a loss of about £100 million - a record for the period.

But Mr O'Leary today gave a bullish outlook for the group's cut-price proposition, claiming it would be "the only major European airline to deliver passenger and profit growth in the current year".