Page last updated at 16:13 GMT, Monday, 28 July 2008 17:13 UK

Ryanair warns of potential losses

Ryanair plane
Ryanair will maintain "aggressive pricing" to lure passengers.

Ryanair has warned it could make an annual loss of up to 60 million euros (47.4m) due to high oil prices.

However the airline insisted it would continue to cut fares, and had no plans to introduce a fuel surcharge.

The budget carrier said that net profits in the three months to the end of June had fallen by 85% to 21m euros - below analysts expectations.

Ryanair's downbeat predictions saw its shares fall 22% while British Airways slipped back 5% and Easyjet lost 8%.

This crisis is potentially so bad that Ryanair will soon be seen as having bitten off more than it can chew
Howard Wheeldon
BCG Partners

The soaring price of jet fuel, combined with customers cutting back on flying, has seen many airlines struggle.

Ryanair's fuel bill now represents almost 50% of its operating costs, compared with 36% last year.

But it said it would look to maintain "aggressive pricing" in order to undercut competitors - and insisted it would not introduce fuel surcharges.

'Get real'

However one analyst described Ryanair's results as "an unmitigated disaster" which needed an urgent response from management.

The airline needed to "at least double" ticket prices and take more planes out of service to cut overheads, said Howard Wheeldon of BGC Partners.

Management needed to "climb off the high and mighty pedestal" and "get real" about the implications of the high oil price and its rapid expansion, he added.

"Although this crisis is not of the airline's own doing, or that of its competitors, it is potentially so bad that Ryanair will soon be seen as having bitten off more than it can chew."

Oil issues

The outlook for the remainder of the fiscal year, which is entirely dependent on fares and fuel prices, remains poor
Michael O'Leary
Chief executive, Ryanair

Chief executive Michael O'Leary said that Ryanair expected to break even at best in the year to March 2009, although he warned the company could lose up to 60m euros.

This compares with a profit of 480.9m euros in the previous year.

Oil hit $147 a barrel earlier this month - though recently it has fallen back to close to $130.

The airline said that the recent fall in prices had been used to hedge 90% of its fuel needs for September at $129 per barrel and 80% for the third quarter at $124 per barrel.

However it was still liable for the full cost of oil in the fourth quarter.

'Poor outlook'

Full fares were likely to fall by 5% as it battled for customers amid plunging confidence, it added.

"The outlook for the remainder of the fiscal year, which is entirely dependent on fares and fuel prices, remains poor," Mr O'Leary said.

However ancillary revenues, from things such as extra baggage charges and credit card booking fees, had risen, the firm said.

Earlier this month, Ryanair said it would cut about 250 flights from Stansted this winter as it tries to offset the increased oil prices.

And its rival Easyjet has said that it will cut flights over the winter to offset a challenging economic climate and the high fuel prices that have dented profit growth.

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