'Irrational' oil price will drag down Ryanair to break-even, says O'Leary

RYANAIR warned yesterday that if oil prices continued at "irrational" levels the company would go from record profits to merely breaking even this year – despite a rise in fares.

The admission by Europe's largest budget airline came as the company revealed an adjusted operating profit of 480.9 million (£378.7m) for the year to 31 March.

Yesterday Michael O'Leary, Ryanair's chief executive, warned that the profit could be wiped out if oil remained at today's record prices.

"Based on forward bookings, we now believe it likely that average fares for the coming year will rise by approximately 5 per cent and if oil prices remain at $130 per barrel, then we expect to accordingly break even for fiscal 2009," O'Leary said.

Unveiling the 2007-8 figures, O'Leary rejected claims that the era of low-cost flying was over, predicted that some of his rivals would go bust and launched new attacks on BAA, the airports operator, and the Civil Aviation Authority (CAA), the industry regulator.

O'Leary said Ryanair would ground airlines in the face of record fuel costs but maintained his business would continue to grow.

In a characteristically colourful performance, the chief executive described the recent rise of oil prices as "irrational". He went on: "There is no fundamental demand-and-supply issue. There is no shortage of oil and there are no queues at petrol stations."

O'Leary said Ryanair carried 50.9 million passengers during the year – 20 per cent more than the previous year. The figure was expected to rise a further 17 per cent to 59 million in the current financial year and could go as high as 82 million a year by 2012, he said.

Ryanair will "continue to grow by taking market share from competitors and expanding in markets where competitors either withdraw capacity or go bust," O'Leary said. He said Ryanair would never introduce fuel surcharges, even if oil reached $500 a barrel and that it was "bulls**t" to say the era of low-fare air travel in Europe was over.



O'Leary described the CAA as "haplessly useless and incompetent" and said BAA airports were "inefficiently designed, inefficiently built and abominable".

He renewed calls for a break-up of the Spanish-owned airport operator's "monopolies" in Scotland, where it owns Edinburgh, Glasgow and Aberdeen airports, and London, where it owns Heathrow, Gatwick and Stansted.

In rejecting fuel surcharges, he said they were "just a scam" to make more money out of the travelling public. He denied that Ryanair's "ancillary revenues", which include £12 to check in each bag, were surcharges.

O'Leary added: "We believe that our earnings will rebound strongly when oil prices settle down, as we believe they will."

The company's chief financial officer, Howard Millar, added that whatever problems his company faced, rivals were likely to face more pressure.

"While Ryanair may go to break-even, it means that the rest of the entire European industry will make massive losses," Millar said.

The airline said it would continue to add new routes and new planes. But the company said it would ground about 20 aircraft, or 10 per cent of its fleet, during the winter.

Ryanair wrote down the value of its 29.2 per cent stake in Irish flag carrier Aer Lingus, by 91.6m. The stake was built up last year as the company attempted a takeover, which was blocked by competition authorities.

Ryanair shares rose 8 per cent to 2.85, with the guidance no worse than the market had feared, and news of increased prices cheering investors.

But analysts questioned the ability of Ryanair to prosper in the current conditions.