No-frills Irish airline Ryanair has warned of a 'fares war' this summer, as competition in the industry intensifies, suggesting that prices on certain routes could be slashed by as much as 9%.
The economy airline said that "the cost gap between Ryanair and competitor airlines continues to widen." The comments come after similar claims by Ryanair's competitors in recent weeks.
"After a difficult winter last year, we expect the pricing environment to remain very competitive into [the second half], where we will grow traffic by approximately seven per cent," said chief executive Michael O'Leary.
Ryanair's Michael O'Leary. Credit: PA
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Keeping plane purchase, maintenance and staff costs as low as possible has allowed Ryanair to undercut rivals while raising profits simultaneously.
In fact, the airline's pre-tax profits in three months soared 55% to €397 million (£356m/$463m). Ryanair carried 35 million passengers, up 12 percent from last year. This means it made a profit per passenger of €12.70 (£11.40/$14.85).
O'Leary said that the rise was "due to a strong April (boosted by Easter) offset by adverse sterling, lower bag revenue as more customers switch to our two free carry-on bag policy, and yield stimulation following a series of security events in Manchester and London."
Credit: PA
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However, the warning of a fares war has put off investors, with Ryanair's shares down by five percent and rival Easyjet's down by three.
Neil Wilson, senior market analyst at City firm ETX Capital, said: "A huge jump in quarterly profits for Ryanair was not enough to assuage investor fears that the company is at the mercy of the pricing pressures felt across the sector. The push for more bums on seats means fares are coming down."
The news comes as Ryanair announced it has made a 'non-binding' offer to buy struggling Italian airline, Alitalia.
According to reports on Friday, the loss-making Italian airline had received ten such offers.
"We have made a non-binding offer for Alitalia. As the largest airline in Italy, it's important we are involved in the process," Ryanair said.
Alitalia filed to be put into special administration in May, for the second time since 2008.
In comments made in June, Ryanair chief executive Michael O'Leary said that if the carrier did decide to invest in the Italian company, it would look to acquire a majority stake.
"Our interest in Alitalia is only... if there was a significant restructuring so that Alitalia could reasonably be seen to operate on a profitable basis," Ryanair's Chief Executive Michael O'Leary told a conference call, according to Reuters.
He added that there would need to be 'an absence of Italian government interference'.
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Topics: Ryanair