Oil prices driving up Ryanair fares

Budget airline Ryanair warned yesterday that the rising cost of oil would force its air fares up by an average 12 per cent this year, and that it expected annual profits to be flat.

Michael O'Leary, Ryanair's chief executive, said the mixture of high fuel prices and the refusal of some airports to offer lower charges meant the group would more than double the aircraft it mothballs this winter to 80 from 40 last winter.

However, O'Leary said the challenging conditions, as ash from another Icelandic volcano threatened to create no-fly zones, would also throw up opportunities for his company to grow market share.

"Higher oil prices will lead to further consolidations, increased competitor losses, and more airlines going broke," he said.

The Irish carrier said it did not expect a repeat of last year's volcanic ash disruption which cost the airline €30 million (26m). "I think there will be a lot fewer problems this year. The regulators made a balls-up of it last year and they are sensitive about it," O'Leary said.

He added: "I hope there will be no airspace closures. There shouldn't be, certainly not over any countries where we are flying."

It came as Ryanair revealed profits rose 26 per cent to €401m in its latest trading year, up from €319m the previous year. Fuel costs increased 37 per cent.

Revenues rose 21 per cent to €3.6bn, while the number of passengers carried by the airline lifted 8 per cent to 72.1 million.

O'Leary claimed that even with the increase in fares to an average €39, Ryanair would still be the cheapest airline in Europe. The airline operates some 1,300 routes in 27 countries.

On the stepped-up "tactical grounding" of planes this winter, O'Leary said: "I don't want to be opening new bases or routes when oil may be over $100 a barrel."

He said ancillary sales grew 21 per cent in the latest trading year, with "teas, coffees and lottery scratchcards" doing particularly well.

The Ryanair boss said that although the group was forecasting flat earnings this year it compared favourably with most rival airlines guiding towards lower earnings.

He also said European government austerity packages were not necessarily bad news for the airline as it made consumers more cost-conscious when deciding who to fly with.

In addition, the austerity backcloth had seen the Irish government scrap transport tax and Greece slash its airport fees to encourage tourism in order to raise money.

O'Leary said he was relaxed about any potential impact on air travel further down the line following the SNP securing a majority government at Holyrood.He said he had noted First Minister Alex Salmond's commitment to getting rid of the UK airport travel tax if Scotland eventually became independent.

"It would give Scottish tourism a huge boost," O'Leary said. "It makes no sense to tax people coming into a country. He (Salmond] seems to be doing a good job, although I admit I don't follow Scottish politics too closely."