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FARE CUTS TO PUT BRAKE ON RYANAIR

Ryanair will be affected by fare cuts

Wednesday June 6,2007

By Andrew Elliott

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THE cost of prosecuting an aggressive price war in the face of falling demand will be a sharp slowdown in profits growth, Ryanair warned yesterday.

Chief executive Michael O’Leary said he expected the budget airline’s yields to fall 5 per cent.

This decline would be driven by lower fares, as the airline tried to increase passengers 22 per cent to 52million this year.
Underlying profits growth will slow to 5 per cent, O’Leary warned, and the City, spooked by the unusually cautious tone, sent the shares down e0.36 euros to e5 euros (£3.40).

O’Leary said a number of factors were to blame for the fall in customer demand. They included rising interest rates,
higher airport charges and the decision by Chancellor Gordon Brown to double taxes on air travel.

“This is the most bearish we’ve been for a number of years,” he said. “We’ve signalled for the past couple of months that the market is soft. Shareholders just have to grit their teeth.”

In the longer term, Ryanair believed a softening in demand would allow it to pile pressure on rivals by slashing prices.
O’Leary said lowest-cost operators tended to outperform rivals when times were tough. “If anything, we will accelerate, open new routes, expand, hit our competitors while they’re down,” he said.

“Ryanair will lead and win every fare war in Europe, because Ryanair has the lowest costs and the lowest fares.”
He was speaking as the company unveiled a 33 per cent rise in pre-tax profits to e401million on revenues that rose 32 per cent to e2.2billion for the year to March.

The airline said average fares rose 7 per cent as rivals increased theirs.

Collins Stewart analysts said they expected Ryanair to beat its own downbeat expectations.

British Airways said the number of passengers carried in May fell 2.1 per cent. The airline blamed increased security at Heathrow.