O'Leary says one low-cost carrier will fail this year

Michael O'Leary, the chief executive of Ryanair, warned yesterday that the savage fares war being fought out among Europe's low-cost airlines would result in the failure of at least one budget carrier this year.

Ryanair expects its own fares to decline by a further 5 to 20 per cent over the next 12 months, having already fallen by 15 per cent in 2003-04, reducing the airline's after-tax profits by 10 per cent to about €215m (£142m).

Mr O'Leary said that in the event of a 20 per cent decline in yields, Ryanair would still break even because of the rate at which it was growing passenger numbers. These are expected to increase to 28 million this year from 23 million in 2003-04.

But he predicted that, with the exception of easyJet, its rival low-cost carriers would not be able to withstand such a huge reduction in fares. "This coming winter will be awful again and we can not expect some of our competitors to survive. It is inevitable that some time there will be casualties."

Mr O'Leary said that the airlines most exposed to the fares war were UK regional carriers and Germany's growing band of budget airlines.

He singled out bmi baby, My Travel Lite and Flybe in Britain, and the German airlines Germania, German Wings and Hapag Lloyd Express as being most exposed to an intensified price war. "They won't all go bust but there will be consolidation, acquisitions, mergers," Mr O'Leary said.

He said Ryanair had no plans to repeat its takeover of Buzz by buying out another ailing budget airline.

He was speaking as Ryanair unveiled its latest giveaway - the sale of 800,000 free seats to coincide with the carrying of its 80 millionth passenger.

The free seats, available from 5 May to 30 June, will account for about 20 per cent of Ryanair's capacity.