May 23, 2016 / 5:22 AM / 4 years ago

Ryanair says to cut prices sharply as European fare war looms

DUBLIN (Reuters) - Ryanair, Europe’s largest low-cost airline, is prepared for a fare war to break out later this year and will cut its own fares sharply to increase its market share to sustain profits, it said on Monday.

The Irish airline, Europe’s largest by passenger numbers, also reported a 43 percent increase in net profits to 1.24 billion euros (0.96 billion pounds) in the year ended March 31, in line with analysts’ forecasts.

The cuts in fares, which will be focused on the winter season, will heap further pressure on rivals who have already warned about the impact of increasing competition on fares and have trimmed some plans for increases in capacity as a result.

Ryanair’s profit growth will also slow to 13 percent in the year to end-March 2017, with its fares expected to fall by an average of 7 percent over the year and by between 10 percent and 12 percent in the winter months compared with a year ago, Chief Executive Michael O’Leary said.

“If there is a fare war in Europe, then Ryanair will be the winner,” he said in a video presentation following publication of its results. Any revision to the forecast for average fares was more likely to be down than up, he added.

The lower fares will enable Ryanair to boost its passenger numbers by 9 percent to 116 million passengers, increasing its leadership of European aviation in terms of traffic.

“This is a competitive signal to the legacy incumbents that this winter Ryanair intends to take further share,” Investec analyst Robert Murphy said.

Rivals including British Airways owner IAG, Lufthansa and Air France-KLM have warned recently about the impact of increasing competition on fares.

Lufthansa Chief Executive Carsten Spohr told reporters last week there was “too much capacity in the market.”

O’Leary also said he was more cautious than rivals about the summer period, when European airlines make almost all of their profit, saying fares in the three months to the end of September would be “flat if not slightly down.”

He warned, however, that the combination of falling fares and increasing oil prices could weigh on profitability in the year to March 2018.

A Ryanair aircraft lands at Manchester Airport in Manchester, Britain, May 26, 2015. REUTERS/Andrew Yates/File Photo

Ryanair described as “cautious” a forecast of a rise in profit to between 1.38 billion euros and 1.43 billion euros for the current financial year. That is short of the consensus market forecast of 1.47 billion euros according to a poll of more than 10 analysts conducted by the company.

Ryanair’s shares outperformed rivals last year as it improved its customer service without increasing fares, but its share price performance has been in line with that of the sector since the start of the year.

Ryanair shares were up 1.5 percent at 13.41 euros at 0925 GMT on Monday. On a morning that the oil price fell around 1 percent, rival easyJet’s shares were up 0.5 percent at 14.77 pounds while Lufthansa, IAG and Air France’s shares were all up between 1 and 2 percent.

Editing by David Goodman and Greg Mahlich

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