Ryanair toils in easyJet's wake as rising fuel costs and eurozone crisis take toll

Michael O'Leary's Ryanair came up short in its battle against low-cost rival easyJet as the eurozone crisis and a soaring fuel bill hit profits and hurt the shares.

The no-frills airline saw pre-tax profits for the quarter to the end of June sink 27 per cent to €112.5m (£88m), well below City hopes, as it blamed austerity measures in the single currency bloc and cut-price fares on new routes for the shortfall.

A 27 per cent rise in the fuel bill to €543.8m swamped a 6 per cent increase in passenger numbers and a 4 per cent rise in average ticket prices. Fuel represents 47 per cent of operating costs, against 43 per cent a year earlier. The airline left full-year forecasts unchanged but it expects little alteration in Europe's economic malaise in the second half. The City marked the shares down 2 per cent to €3.99.

Ryanair cut a stark contrast with easyJet, which raised annual profit forecasts last week as Britons flocked to book flights to the sun. Analysts hinted that a £200m special dividend could be on the way.

EasyJet now expects profits of between £280m and £300m in the year to October, up from previous guidance of £272m.

Andrew Fitchie, an analyst at Investec, said: "EasyJet are doing a bit better at the moment in terms of their strategy, concentrating on thicker [revenue-generating] routes and filling their planes up. Ryanair is a bit more vulnerable to the economic cycle. It hasn't actually changed its profit guidance but perhaps the shares had got a little bit ahead of themselves."

Howard Millar, Ryanair's chief financial operator, warned: "Austerity is biting. There is just less money around."

The airline has hedged 90 per cent of its fuel needs for the year to March at about $1,000 a tonne, up 21 per cent on last year, although the savings will be offset by the euro's sliding value against the dollar.

It is sticking to plans to ground 80 of its 270 planes over the winter because of high fuel costs.