Ryanair gives profits warning as fuel costs bite

Ryanair warned yesterday that it could slip into a quarterly loss at the end of this year for the first time since it floated in 1997 because of a combination of rising fuel prices, excess capacity and price-dumping by rival low-cost carriers.

The warning took the shine off a much better than expected 67 per cent jump in pre-tax profits to €128.6m (£87.8m) for the three months to the end of June. Ryanair shares slipped 3 per cent, closing €0.27 lower at €7.51.

The jump in first-quarter profits was driven by the late timing of Easter, which resulted in a surge in passengers flying to "sun" destinations, the early launch of new routes and the impact of baggage charging at Ryanair and fuel surcharging by its rivals.

This resulted in a 25 per cent increase in traffic, a 40 per cent rise in revenues to €566m and an unprecedented 13 per cent increase in average fares.

But Ryanair's chief executive, Michael O'Leary, cautioned that the airline's "bumper" first-quarter performance was a one-off which would not be repeated throughout the remainder of the year. He said the coming winter would be characterised by "much more difficult trading conditions" with the result that net profit growth for the year would still be within the company's previously announced range of 5-10 per cent. Almost all of its profits would be made in the first half of the year, and in the final quarter from January to March Ryanair could even sustain losses.

Howard Millar, Ryanair's chief financial officer, denied that its warning of a possible winter fares war had been designed to deter rival airlines from slashing prices in the first place. "We're not that subtle and we're not that clever," he said. "It is just a reflection of the fact that oil prices are high, we are bringing in a lot of extra capacity and there may be some price-dumping going on."

Ryanair plans to add 27 aircraft to its fleet this winter, compared with just 15 last year. It had hedged 90 per cent of its fuel requirements through to the end of October at an oil price of $70 a barrel and 90 per cent of its needs for November and December at $74 a barrel. The airline plans to put hedges in place for January to March in the next two months.