Oil prices hit Ryanair profits

Ryanair, the budget airline, saw its profits tumble by 85% to €21m (£16.6m) in the first quarter of the year because of the rising price of oil. But the airline pledged to respond by cutting fares, even though it could lead to a yearly loss of up to €60m (£47.6m).

The Dublin-based carrier’s chief executive Michael O’Leary said Ryanair’s fuel bill rose 93% to €367m (£289.6m) in the three months to June 30, accounting for almost 50% of its operating costs, compared with 36% last year.

However, he said that fares would not rise as a result of the hit. “We will continue to absorb higher oil costs, even if it means short-term losses,” he said.

“Consumer confidence is plummeting, and we believe this will have an adverse impact on fares for the rest of the year,” O’Leary added, stating that fares could fall by up to 5%.

“Ryanair will lead this downward pricing at a time when most of our competitors are hoping to raise fares and fuel surcharges,” he stated.

The airline took advantage of a recent dip in oil prices to hedge 90% of its second quarter fuel at $129 a barrel and 80% for the third quarter at $124 a barrel, but has not fixed a price for the fourth quarter.

The carrier may recoup some money by introducing charges to use mobile phones on flights. Passengers will be allowed to use their mobiles and Blackberrys on 10 planes this year as part of a trial.

Ryanair shares fell almost a quarter following the announcement, and other airlines including easyJet and British Airways also saw their share prices drop.