Ryanair takes wing as O'Leary flies through price war intact

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Ryanair, the no-frills Irish carrier, cheered the markets yesterday by unveiling better-than-expected first-half profits and predicting a much stronger end to the year than had been forecast.

Ryanair, the no-frills Irish carrier, cheered the markets yesterday by unveiling better-than-expected first-half profits and predicting a much stronger end to the year than had been forecast.

The upbeat message sent Ryanair shares 16 per cent higher and came as a relief to investors still reeling from the low-cost airline's profit warning at the start of the year which led to a near halving in its stock market value.

Ryanair's chief executive, Michael O'Leary, said he now expected fares to fall by between 5 and 10 per cent in the second half of the year compared with a previous estimate of 10-20 per cent, even though the price war among low-cost operators was likely to intensify still further. Ryanair also stood by its forecast of an annual net profit of between €200m (£138m) and €215m - well ahead of analysts' forecasts.

Mr O'Leary warned that the "perfect storm" of intense price competition and soaring fuel charges could accelerate the "bloodbath" among airlines that Ryanair has already predicted for this winter, citing the collapse of the German carrier V-Bird two weeks ago. "It will hasten the demise of the hopeless basket cases out there and the sooner they go to the wall, the better," he added.

He also said that the high oil price might actually work to the benefit of Ryanair. The improvement in yields which Ryanair is now forecasting for the remainder of the year will enable the airline to absorb the €55m impact of higher fuel prices, assuming oil remains at about $50 a barrel.

In the first half, Ryanair's fares fell by only 5 per cent compared with a forecast drop of up to 10 per cent. Mr O'Leary attributed this to competitors such as British Airways, Lufthansa and Air France raising fares by imposing a series of fuel surcharges on passengers, enabling Ryanair to discount its own tickets by less than planned.

Ryanair reported an 18 per cent rise in pre-tax profits to €220m for six months to the end of September and net profit of €200m - producing a net margin of 28 per cent. Although the airline is now unhedged in terms of forward fuel purchases, Mr O'Leary said the weakness of the dollar against the euro would help both in terms of fuel and aircraft purchasing. The airline expects to take in another 25 new Boeing 737-800 aircraft this year and retire 10 of its existing fleet.

Meanwhile the war of words between Ryanair and the airports operator BAA over charges at Stansted escalated. BAA disclosed it had billed Ryanair for an additional £7m since July on the grounds that it had breached its contract by refusing to pay fuel levies at the airport and said the extra cost to Ryanair in a full year would be £25m.

Ryanair, which is counter-suing BAA, responded by dismissing the airport operator's demands and going on to launch a fresh barrage against the group over the cost of the proposed new runway at Stansted.

"They are on a cocaine-induced spending spree. They are an overcharging, gold-plating monopoly which should be broken up. They want to spend £4bn on a runway which should cost £100m," Mr O'Leary said.

Mike Clasper, the chief executive of BAA, said: "You cannot run a business on the basis of people deciding what they want to pay. If all you had to do was fly some Irish labourers over to lay some tarmac down the drive then the runway would only cost £100m but Michael knows that is not a sensible number. He just likes the showmanship."

Battle over the expansion of Stansted carries on

"They are on a cocaine-induced spending spree. They are an overcharging, gold-plating monopoly which should be broken up. They want to spend £4bn on a runway which should cost £100m - that will mortgage away the future of low-cost air travel for the next 50 years"

Michael O'Leary, chief executive of Ryanair

"You cannot run a business on the basis of people deciding what they want to pay. If all you had to do was fly some Irish labourers over to lay some tarmac down the drive then the runway would only cost £100m, but Michael knows that is not a sensible number"

Michael Clasper, chief executive of BAA

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