Fares fall in airlines war

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Boss Michael O'Leary's move, in response to an 85 per cent drop in profits in the last three months, is sure to spark a price war as he targets both nofrills rivals and British Airways.

Ryanair, Europe's largest budget airline, said soaring oil prices meant it could make a loss of £47million this year, compared with a profit of £378million last year.

One analyst said the airline had been caught "directly in the path of the current economic storm".

The gloomy update shook the airline industry with shares in British Airways down by five per cent and easyJet falling 10 per cent at one stage.

But Mr O'Leary came out fighting. He insisted that cheap air travel was here to stay and said he would be cutting prices by five per cent instead of an expected increase of five per cent. His deputy Howard Millar said the airline had changed its mind about attempting to raise fares. "Things have changed over the last few weeks," he said. "We know the UK and Irish economies are weakening and that the UK is heading for some form of recession. In those circumstances and looking at our bookings we know that passengers are not prepared to pay more. There are going to be plenty of bargains for travellers."

Ryanair today admitted the first quarter of its financial year, the three months to the end of June, was the worst in its history. The soaring oil price, which averaged $117 a barrel in the quarter compared with $61 a barrel in the same period last year, sent Ryanair profits plunging to £16 million.

But Ryanair said it would look to maintain "aggressive pricing" in order to maintain high plane usage.

Mr O'Leary added: "Ryanair will lead this downward pricing at a time when most of our competitors are hoping to raise fares and fuel surcharges."

Its cut in air fares comes as British Airways is reportedly looking at cutting many short-haul flights and routes in a desperate attempt to avoid going into the red.