Business

Ryanair says fares to fall 7% amid price war

ryanair airline Image copyright Reuters

Ryanair says it expects its average fare to fall by 7% this year as it cuts prices to boost its market share amid intensifying competition.

"If there is a fare war in Europe, then Ryanair will be the winner," Ryanair chief executive Michael O'Leary said.

Analysts said rival airlines were likely to follow suit.

The cuts came as the budget airline reported a 43% rise in net profit to €1.2bn for the full year to the end of March, just short of analyst forecasts.

Mr O'Leary vowed to take market share from rival airlines, saying: "If other airlines want to compete with us on price, then we will lower our prices again."

'Throwing down the gauntlet'

The sharp drop in the price of oil, which has fallen 70% since June 2014, has made it easier for airlines to cut flight costs and analysts said rival airlines would be forced to cut their fares in response.

"Ryanair is a major player in many of the markets and airports it flies to. If it cuts prices, other airlines will have to respond to that," said Robin Byde at Cantor Fitzgerald.

Russ Mould, investment director at stockbroker AJ Bell, said: "Ryanair has thrown down the gauntlet to its budget airline rivals."

Rival airlines including British Airways owner IAG, Lufthansa and Air France-KLM have all warned of increasing competition on fares.

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Ryanair uses what it calls a "load factor active/yield passive" model, which means that it will cut fares as much as is necessary to keep its aircraft full.

Despite the fare cuts, Ryanair said it expected profit for 2017 to rise 13%, with falling fares balanced by an increase in passenger numbers. But falling fares could hit profitability in 2018, Mr O'Leary warned.

"We have to be cautious about the impact of declining airfares... and the recent rises in oil prices and what that might mean for profitability out into 2018," he said.

It said its first quarter results - the three months to the end of June - would be hit by recent strikes by airport staff in Italy, Greece, Belgium and France, as well as by the absence of any Easter holiday in April this year and weakness in the pound ahead of the Brexit referendum in June.

Terrorist attacks

The shares, which have risen 20% over the past year, inched up 0.2% after the results and Investec analyst Robert Murphy said investors had expected the drop in fare prices.

"The big picture is that, despite all of the setbacks in Europe, their business model is holding up strongly," Mr Murphy said.

Rivals including Easyjet, British Airways owner IAG, Lufthansa and Air France-KLM have warned recently about the impact on tourism from the terrorist attacks in Paris and Brussels.

Last week Thomas Cook said summer bookings were down 5% compared with last year, due in part to terrorism fears.

Ryanair also reiterated its call for the UK to remain in the EU ahead of the vote next month, saying it was "actively campaigning" for a Remain vote to win.

"If the UK leaves the EU then this, we believe, will damage economic growth and consumer confidence in the UK for the next two to three years as they begin to negotiate their exit from the EU and re-entry to the single market in very uncertain market conditions," it said.

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