The Thing Is: O'Leary on a wing and a prayer after bad week

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The Independent Online

By almost every measure it was a terrible week for Ryanair. For a start, it managed to disappoint its shareholders with a humdinger of a profit warning, the first in the airline's 15-year history, which said it would see a healthy 10 per cent projected increase in profits wilt to a 10 per cent decrease.

The no-frills airline also irked politicians in Brussels by launching a blistering attack on a state aid ruling before commissioners had even stood up to make it. "[Ryanair chief executive] Michael O'Leary is playing poker. He is terribly irritating and irritates the comm-issioners," snapped Belgian commissioner Philippe Busquin.

And to cap an extraordinarily turbulent week, the company also raised the hackles of its disabled customers by announcing that it would appeal against a ruling which said Ryanair was wrong to charge wheelchair users more for their tickets.

Who could possibly view this as a good week's work? Step forward the ever-ebullient Mr O'Leary. "So far, so good" was his analysis of the situation when contacted by The Independent on Sunday. His typically chirpy response will further anger the critics who for years have never quite believed the Ryanair story.

So how should we judge Ryanair in the light of the last seven days? "Is the Ryanair business model broke? I don't think so. The markets tend to overreact to these things," said Mr O'Leary. "Some people have slightly overblown the situation. Our guidance for the year still shows that we are over €200m (£136m) in profit. We are still going to make a 20 per cent margin."

The City is not entirely convinced. Ryanair's mini fall from grace is due to the intense competition in the low-cost sector. The airline had been soaring above British Airways when judged by market capitalisation, but in an effort to keep the momentum going, Ryanair has been increasing capacity and lowering prices, on occasions giving away seats. This has put the pressure on its profit margins, shrinking them from 30 per cent to 20 per cent.

On Tuesday the European Commission will intensify the squeeze on Ryanair's margins, with what could be a landmark ruling on state aid. Thanks to the O'Leary broadcasting corporation, we already have a pretty good idea of what Brussels is going to say: the state subsidies it receives to fly to Brussels Charleroi are in breach of EU rules. The Commission is expected to rule that other state airport subsidies are illegal, too.

Mr O'Leary has warned that this could be the death of the low-cost sector. But most analysts agree that because Ryanair has the lion's share of these sorts of subsidy deals, there will really be only one low-cost airline affected.

Andrew Lobbenberg, aviation analyst at investment bank ABN Amro, said: "The ruling is unlikely to materially affect other airlines, but will significantly increase Ryanair's airport, handling and marketing costs."

Mr Lobbenberg has calculated that Ryanair has a 33 per cent cost advantage over arch rival easyJet. "At the heart... are the negotiated airport incentive deals," he said.

Mr O'Leary said that he had garnered support from the other low-cost carriers to challenge Brussels' impending decision. However, easyJet is unlikely to be part of the gang. An easyJet spokesman said: "Michael O'Leary has been telling everyone that the sky will fall through, but we just don't share that view. We welcome the transparency that the ruling will bring."

Just as Mr O'Leary has done his best to put a spin on the week's events, there are plenty of people out there who are willing to talk up an apocalyptic scenario for Ryanair. But with plenty of cash in the bank and still making decent profits, the company is, for example, in much better shape than British Airways. BA's big mistake was to lose sight of its customers, through years of complacency, and last week it had to launch a new round of cost cuts.

This should serve as a reminder to Mr O'Leary that - given his efforts to overturn the ruling on disabled customers, for example - offering lots of cheap seats isn't enough to safeguard profits.