July 27, 2015 / 5:28 AM / 3 years ago

Ryanair to target rivals with aggressive winter fare cuts

DUBLIN (Reuters) - Ryanair (RYA.I) said on Monday it would cut ticket prices aggressively this winter and lifted its annual growth target by a third to 12 million new passengers, heaping pressure on rivals who are struggling to compete on costs.

The Irish budget airline, which already carries more passengers than any other European airline, is planning “very aggressive pricing” with average fares set to fall by up to 8 percent in the six months to March 2016, Chief Executive Michael O’Leary said.

The move comes days after higher-cost rival Air France-KLM (AIRF.PA) said it would accelerate restructuring plans and Germany’s Lufthansa (LHAG.DE) announced new low-cost style fares on Monday in a sign it too is feeling the pressure.

Ryanair announced a 25 percent jump in profit for the three months through June, although it disappointed some investors by not lifting its profit guidance for the full year through March despite strong summer bookings.

The winter price cuts could also prove bad news for easyJet (EZJ.L), which Ryanair is targeting in a major push to improve customer service and expansion into mainstream airports that it has traditionally left to its English rival.

“I think this winter they will push capacity aggressively into certain markets ... and if there is an airline that should be concerned, it’s probably easyJet (EZJ.L),” said Goodbody Stockbrokers analyst Mark Simpson.

Shares of easyJet, Air France-KLM and Lufthansa were all down by around 1 percent at 1015 GMT.

Aping Ryanair, Lufthansa said on Monday that its new fares to take effect from October will see customers pay extra depending on the amount of luggage, whether they wish to book a seat in advance, and if they need a flexible ticket.

A Ryanair aircraft lands at Manchester Airport in Manchester, north-west England, Britain, May 26, 2015. REUTERS/Andrew Yates

LOWER FUEL PRICES

Ryanair said profit after tax for the full year would be at the higher end of its forecast of 940 million to 970 million euros given in May.

It said it was being cautious due to poor visibility and that it was “too early in the year” to change its full-year profit guidance. That sent its shares down 3 percent on opening, though they later pared losses to 1 percent.

After previously warning that summer fares in the six months to the end of September could fall by up to 2 percent, the airline said it now expected them to be flat, giving it the financial firepower to be aggressive in the winter.

“We’re going to use some of the slightly better (first-half) performance ... to pass on very aggressive pricing so that we fill 15 percent capacity growth in the second half,” O’Leary said in a video statement.

Lower fuel prices will also help, providing a reduction of 7 percent in costs per seat, he said.

The airline plans to ground 40 planes this winter compared to 50 last year and it expects to fill 90 percent of its seats, up from 88 percent last year, the company said in a statement.

Profit for the three months to the end of June, the first quarter of the company’s financial year, was 245 million euros, up 25 percent year on year, and just short of a 249 million forecast in a Ryanair poll of analysts.

Ancillary revenue in the quarter was up 9 percent, lagging traffic growth of 16 percent in part due to lower charges for checked baggage following a decision to allow a second small bag in the cabin for free, O’Leary said.

Ryanair said it now expected to carry 103 million passengers this year, up 12 million from last year. In May it had forecast an increase of only 9 million.

Additional reporting by Victoria Bryan; Editing by Jason Neely and Susan Fenton

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