Ryanair warns of further air fare price hike

Ryanair today lost the latest round in its legal battle (PA)

Budget airline Ryanair warned today that surging oil prices will force average air fares up by 12% in the current financial year.

The Irish carrier, which prides itself on its cheap tickets, had already increased fares by 12% in the year to March 31 as fuel costs continued to pile pressure on the airline industry.

But the group, which operates more than 1,500 flights per day, also added that higher oil prices would lead to "more airlines going broke", creating further growth opportunities.

The warning on fares came as Ryanair reported a 26% increase in underlying pre-tax profits to 319 million euros (£277 million) in the year to March 31.

Ryanair warned that higher air fares in the year to March 2012 will only help cover higher fuel costs and it now expects full-year profits to be flat year on year.

It said fuel costs increased by 37% to 1.2 billion euros (£1 billion) in the last financial year as average oil prices increased from 62 US dollars a barrel to 73 US dollars.

But chief executive Michael O'Leary said rising crude oil prices did present opportunities for the airline.

He said: "Higher oil prices will force competitors to continue to increase fares and fuel surcharges which makes Ryanair's lower fares even more attractive.

"In many cases competitors' fuel surcharges are higher than Ryanair's lead-in fares. Higher oil prices will lead to further consolidations, increased competitor losses, and more airlines going broke."

Earlier this month, low-cost rival easyJet reported a near doubling in half-year losses as it battled higher fuel prices.

Ryanair cancelled 14,000 flights in the last financial year due to volcanic ash disruptions, airport snow closures and repeated air traffic control strikes.

But the carrier still saw 8% traffic growth to 72.1 million passengers and revenues increase 21% to 3.6 billion euros (£3.1 billion) as airfares rose.

The airline also benefited from a 21% surge in ancillary revenues, such as in-flight sales of refreshments and entertainment, to 802 million euros (£697.1 million).

Like its low-cost rivals, Ryanair sees ancillary revenues as a key part of business as it allows airlines to keep ticket prices lower.

It added 40 new aircraft to its now 272-strong fleet and moved into eight new bases, including Seville, Tenerife and Lanzarote among others.

Looking ahead, the airline has forecast traffic to grow by 4% to 75 million passengers in the year to March 2012.