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Ryanair paves way for air fare war as profits rise

Budget airline expects average fares to fall about 7% this year

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Ryanair said a UK departure from the EU would damage UK economic growth for the next two to three years

Ryanair Holdings PLC (LON:RYA) said it expected air fares to drop as competition heats up, although its profits rose by nearly half.

It expects average fares to fall about 7% this year, comprising a decline of between 5-7% in the first half and a reduction of 10-12% in the second half.

Pricing will be softer, particularly in the first quarter and the fourth quarter, in the absence of Easter holiday benefits and higher European capacity than in prior years as hedged rivals benefit from lower bills.

AJ Bell investment director Russ Mould said: "Ryanair has fired the opening salvo in a cut-price ticket war to lure passengers who may be reluctant fliers following terror attacks and cancellations due to air traffic control strikes.

"Ryanair has thrown down the gauntlet and, given its clout in key markets, it seems inevitable that its budget airline rivals will have to respond."

The Irish budget airline increased annual profits by 43% and said it expected another rise this year, although possible headwinds could affect that.

Post-tax profit rose to €1.2bn from €867mln a year ago on a 16% lift in revenue to €6.5bn, with passengers up 18% to 106.4 million.

That came despite an average oil price of $90 a barrel due to fuel hedging in 2014, which meant Ryanair did not benefit as much from the falling crude price.

It launched seven bases in Belfast, Berlin, Corfu, Gothenburg, Ibiza, Milan (Malpensa) and Santiago during the year and will open a further seven this winter.

The airline will take delivery of 52 new Boeing 737 aircraft, taking its fleet to 380 by the end of the year.

Ryanair said it cautiously expected full-year net profit to rise by about 13% in 2016/17, to a range of between €1,375mln and €1,425mln.

But it added: "This guidance remains heavily dependent on the strength of close-in summer bookings and next winter's yields, the strength of sterling and the absence of any further external shocks or significant air traffic control strikes/cancellations."

Chief executive Michael O'Leary added: "As the UK's largest airline, Ryanair strongly believes the UK economy and its future growth prospects are stronger if it remains a member of the European Union.

"If the UK leaves the EU then this, we believe, will damage economic growth and consumer confidence in the UK for the next two to three years."

It said it was on average 2% better booked for the peak summer months than this time last year but at lower fares.

It expects its 2016/17 load factor to match last year (93%) as it increases expected traffic by 9% to 116 million.

Quick facts: Ryanair Holdings plc

Price: 15.3 EUR

LSE:RYA
Market: LSE
Market Cap: €16.79 billion
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