How no-frills war will take its toll

THE price war among European airlines this winter will see fares continue to drop and profits at the likes of Ryanair and easyJet will be hit as hard as the City fears.

Ryanair chief executive Michael O'Leary told City investors and analysts today he expects the decline in the market-leading budget airline's yields - the money it makes per passenger - to be at the worst end of the 10% to 20% he has already predicted.

'This will be Armageddon, a bloodbath, a nightmare for the industry, partly because we will cause it by smashing our fares,' said O'Leary.

But he admitted at today's conference organised by top investment bank UBS that he has been deliberately attempting to spook the market.

'It does not take a genius to say air fares will be going down,' he said. 'But it is helpful to us to talk in calamitous terms. It prepares the industry, it frightens the competition and stimulates more people to book with you.'

EasyJet finance director Chris Walton said: 'It is going to be a hard winter for the smaller players with their stupid and irrational pricing.

'There are 56 little players out there and we are going to be making life difficult for them.'