O'Leary warns of 'bloodbath' as Ryanair suffers first drop in profits

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Ryanair, the low-cost Irish airline, yesterday warned of a "bloodbath" among European carriers as it reported its first quarterly loss since flotation seven years ago.

Ryanair, the low-cost Irish airline, yesterday warned of a "bloodbath" among European carriers as it reported its first quarterly loss since flotation seven years ago.

Losses in the final quarter from January to March were €3.5m (£2.3m). The three-month loss helped contribute to Ryanair's first fall in annual profits for 15 years after a year in which the airline's average fares fell 14 per cent and the industry as a whole was riven by surging fuel costs, the war in Iraq and threat of terrorist attacks.

Pre-tax profits for the year fell 14 per cent to €228.5m although on an after-tax, pre-exceptional basis - Ryanair's preferred measure - the decline was a smaller-than-expected 5 per cent.

Michael O'Leary, Ryanair's chief executive, predicted that Ryanair's own fares would fall by another 5-8 per cent this year. "It's a bloodbath out there and it's going to continue," he said. "It's a very shitty marketplace with fare wars breaking out all over the place. But we look forward to that because we remain convinced that the lowest cost operator will win."

Mr O'Leary said with most rival airlines losing money, some would go bust this winter and more would fail over the next two years, meaning that only Ryanair and perhaps one other low-cost operator would survive longer-term. The Ryanair chief shrugged off its first quarterly loss since becoming a public company, saying "we don't walk on water". He also guaranteed that Ryanair would not impose a fuel surcharge this year or next, saying that even if the cost of aviation fuel were to double, the airline would still be profitable.

Ryanair's helter-skelter pace of expansion will slow over the next 12 months although the airline still expects to increase capacity by 16 per cent, take delivery of a further 27 Boeing 737-800 jets and open two new bases in Europe.

Compared with Ryanair's forecast in January that fares could fall as much as 20 per cent this year, the airline appears more sanguine, now that it has sold half its seats for the summer.

Mr O'Leary expects fares to fall by about 5 per cent this summer but he still believes they could drop up to 20 per cent in the winter as loss-making competitors "dump prices to try to stay alive". Any reduction in fares beyond 7 per cent for the year would result in a fall in profits, and a fare decline of 20 per cent would reduce Ryanair to break-even. Revenues last year topped €1bn for the first time while passenger numbers rose 47 per cent to 23.1 million. Ryanair expects 20 per cent traffic growth this year.

Ryanair shares slipped marginally to close at €4.32 - 43 per cent down on their level before January's profits warning. Asked whether he intended to sell any of his 37 million shares, Mr O'Leary replied: "Not at these prices. It is much too low."

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