Ryanair profits go into a dive

IRISH no-frills airline Ryanair today unveiled the extent to which it has been hit by ferocious price cutting with a sharp drop in annual profits.

The fall is the first since the company floated on the stock market and reveals a sharp reduction in average fares. Overall, net profit dived to e207m from e239m.

The fall comes just weeks after chief executive Michael O‘Leary warned that profits could be wiped out this year amid a fierce price war among the budget airlines.

O‘Leary admitted that the carrier‘s outlook for the coming 12 months would remain 'very conservative', but insisted that passenger traffic would grow by about 20%.

The impact of the price war is clear in Ryanair‘s figures and is underlined by the fact that while passenger volumes will grow by about a fifth, the airline will struggle to maintain margins.

Ryanair still expects to attract more passengers this year, but as its rivals continue to sell seats as cheaply as they can to keep aircraft as full as possible, O‘Leary said he expects average fares or 'yields' to fall between 10%-20% this year.

He added: 'With almost 50% of the seats booked for the summer season, the yield attrition seems to be towards the lower end of our forecast range at 5%-10%. But next winter, as many of our loss-making competitors dump prices to try to stay alive, we expect the yield declines to increase within a range of 10%-20%.'

Ryanair is set to continue lower prices in line with the market and aims to attract 50m passengers a year 'within the next few years'. O'Leary reiterated his belief that only one or two low-fare airlines will survive in Europe as tough competition forces others out of business.

O‘Leary declared: 'It remains our medium term view that there will only be one or possibly two large low-fares airlines in Europe and we are determined that the biggest and lowest cost of these carriers will be Ryanair.'

The extent to which the mainstream carriers have been forced to play the budget airlines' game was underlined recently when British Airways slashed dozens of European fares in a dramatic new price war.

BA knocked up to 30% off ticket prices on 38 short-haul routes from Gatwick to win back passengers from Ryanair and easyJet.

Lowest prices for destinations such as Naples, Prague and Pisa have been cut from £99 return to £69 - including taxes and the new £2.50-a-flight fuel surcharge. Lowest fares to Venice, Barcelona and Madrid are down from £89 to £69.

Earlier this Month easyJet posted £27m losses for the winter and disappointed City investors by reporting poor recent trading and giving a gloomy assessment of the European airline market.