Air shares fall as Ryanair stokes price war with rivals

Airline stocks have faced a day of turbulence after Ryanair said it was expecting further cuts in fares on the horizon - stoking fears of a price war across the sector.

The no-frills airline - Europe's largest by passenger numbers - raised the prospect of cheaper fares while posting a 55% jump in first-quarter profits compared to the same period last year.

Pre (Shanghai: 600048.SS - news) -tax profits rose to £356m in the three months to 30 June while revenues were up 13% to £1.7bn.

But the airline stressed this was boosted by a 12% rise in passenger numbers to 35 million through the timing of Easter this year, which was in March in 2016.

Average Ryanair fares rose by 1% in the period, but the company said it expected to cut fares by 5% in the first six months of the year and by 8% between October 2017 and March 2018 amid tough competition in the sector.

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The announcement sent its shares - and those of rivals - downwards as investors fretted over profitability.

Ryanair shares were 1.6% down by the close while main rival easyJet lost 2.8% of its market value. Wizz Air (Frankfurt: WI2.F - news) and BA's owner, IAG, were down too by 1.2% and 0.8% respectively.

Ryanair also used its results statement to repeat its warning that Brexit could cause it to cancel flights and move its planes out of the UK, unless a new aviation deal with the EU is struck.

Chief (Taiwan OTC: 3345.TWO - news) executive Michael O'Leary said: "We remain concerned at the uncertainty which surrounds the terms of the UK's departure from the EU in March '19.

"While we continue to campaign for the UK to remain in the EU Open Skies agreement, we caution that should the UK leave, there may not be sufficient time, or goodwill on both sides, to negotiate a timely replacement bilateral, which could result in a disruption of flights between the UK and Europe for a period of time from April '19 onwards.

"We, like all airlines, seek clarity on this issue before we publish our summer 2019 schedule in the second quarter of 2018.

"If we do not have certainty about the legal basis for the operation of flights between the UK and the EU by autumn 2018, we may be forced to cancel flights and move some, or all, of our UK-based aircraft to Continental Europe from April '19 onwards.

"We have contingency plans in place and will, as always, adapt to changed circumstances in the best interests of our customers and shareholders."

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Without a deal, UK airlines could lose their right to fly to and from Europe or operate within the EU.

EasyJet (Frankfurt: A1JTC1 - news) has already taken steps to establish a European certificate and create a new airline to continue flying in the European Union after Brexit - should Britain fail to negotiate the same aviation freedoms it currently enjoys as a member of the EU.