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Ryanair is expecting an 'irrational' price war with other budget airlines

Airfares could drop up to 8% next year, it predicts.

Ryanair CEO Michael O'Leary
Ryanair CEO Michael O'Leary
Image: Sasko Lazarov/Photocall Ireland

Updated 10.30

CUSTOMERS COULD REAP the benefits of an airline price war as Ryanair’s competitors try to compete with its low-cost model.

The Irish budget carrier today beat expectations for another year with a huge leap in profits.

The airline forecast it would increase passenger numbers another 10% over the coming 12 months, a capacity boost that would take it to about 100 million passengers for the 2015-16 period.

Ryanair this morning reported its after-tax profits were €867 million for the year to the end of March – up two-thirds on the tally for the previous 12 months.

In its results statement, the airline said this about the year ahead:

While our traffic growth this year will be strong, it would be foolish not to expect some irrational pricing response from competitors who cannot compete with our lowest costs and fares.”

But Ryanair added it would remain “vigorously” active in increasing load factors – that is, the share of seats it managed to fill on all its planes – while remaining “price passive”.

Ryanair hotel website launch Source: Dominic Lipinski/PA Archive

In a nutshell, that means the airline plans to boost profits by lifting passenger numbers, rather than trying for higher returns through hiking fares.

CEO Michael O’Leary said it expected to see the biggest competition in prices from rivals which hadn’t bought their fuel in advance and were enjoying the immediate benefits of low fuel prices.

“In the first half of the year we expect average fares to be flat to down 2%, but in the second half of the year we expect to see some irrational price competition,” he said.

We believe this will lead to some price competition next winter, particularly as Ryanair continues its successful expansion across Europe … we are guiding that average fares will fall by between 4% to 8%.”

O’Leary said more than half the airline’s growth this year would come from primary airports in cities where it had set up bases like Rome, Brussels and Berlin.

Ryanair Source: YouTube/Ryanair

Low costs

The latest results showed that over the past 12 months Ryanair managed to carve out the big profit increase despite its revenues increasing only 12% in the same period.

The airline is now either the first- or second-busiest airline in most European countries, with the notable exceptions of the major German and French markets.

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Ryanair Source: Juanedc

It said the biggest factor in driving its costs down was the lower price of fuel, while other expenses were flat – compared to many competitors which it said had experienced cost increases.

Early this year the oil price hit a six-year low of close to $50 a barrel, although it has since bounced back over 30%.

Ryanair costs A breakdown of Ryanair's costs Source: Ryanair

But Ryanair has also been the target of complaints for its cost-cutting practices with the mayor of Copenhagen recently banning 45,000 staff from flying with the airline over claims it underpaid staff. The airline has dismissed the suggestions as “inaccurate”.

“We very much welcome the amount of free publicity the mayor has generated for Ryanair’s services and we’re thrilled with the surge in bookings to and from Copenhagen in recent days,” O’Leary said in a presentation today.

The airline was also named just outside the ten least-favourite companies in a recent survey of Irish consumers, although its score has improved significantly during the past two years.

First published 9.57am

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About the author:

Peter Bodkin  / Editor, Fora

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