Low-cost airline Ryanair has admitted that full-year profits would be impacted by aggressive action to slash fares to attract cash-strapped fliers.
The group – headed by controversial boss Michael O’Leary – said annual net profits were now expected to be at the lower end of market forecasts for between £172.8 million and £259.2 m.
Ryanair reduced fares by 13 per cent on average over the three months to June 30, which saw revenues come under pressure, although significantly lower fuel costs helped profits climb almost seven-fold.
Ryanair, which last week announced it was cutting its winter services out of Stansted by 40 per cent, reported first-quarter net profits of £118 million, up 550 per cent thanks to plunging fuel costs.
Meanwhile, revenues fell slightly, down 0.3 per cent to £669 m. But passenger numbers rose 11 per cent and Ryanair also grew “ancillary” revenues – such as extra fees for checked-in baggage and the use of credit cards – 13 per cent to £142.9 m.
Mr O’Leary said: “Thanks to a 13 per cent reduction in average fares, we grew traffic by 11 per cent, which was a robust performance in a deep recession, when many of our competitors were cutting flights, losing traffic and reporting increased losses.”
Ryanair’s fuel costs were 42 per cent lower than last year, when the oil-price bubble hit airlines hard.
The airline has now taken out hedging – effectively, insurance – to fix fuel prices for the year ahead, with a view to annual savings of £397.3 m.
The Dublin-based airline, which launched in 1985 with a single 15-seater aircraft, is hoping its “no-frills” model will help it take advantage of the consumer drive for lower prices.
The industry has been hit by a slump in global tourism amid the recession and consumer-spending decline.
British Airways is fighting a self-proclaimed “battle for survival” and is also reporting first-quarter figures this week, when it is expected to show a loss of about £100 m – a record for the period.
But Mr O’Leary gave a bullish outlook for the group’s cut-price proposition, claiming it would be “the only major European airline to deliver passenger and profit growth in the current year”.
Ryanair shares fell as much as nine per cent after the announcement, while British Airways and easyJet were both down three per cent.
Airline analyst James Cooke, of Panmure Gordon, said Ryanair’s outlook “clearly reflects the challenging revenue environment.”