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Lower fares shrink Ryanair's profits

Ryanair had to cut its fares more than expected during the last three months of 2016 because of over-capacity, which pulled down profits.

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Lower fares shrink Ryanair's profits

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Ryanair has said it had to cut its fares more than expected during the last three months of 2016, which pulled down profits.

Fares were slashes because of over-capacity – too many seats available on short-haul flights in Europe.

The low-cost carrier’s profit between October and December was down by eight percent year-on-year at 95 million euros.

And Ryanair’s Chief Financial Officer, Neil Sorahan said fares will keep falling: “European consumers have had great value in the last quarter where they have seen [average] fares of 33 euros. We are talking about a 15 percent reduction potentially into the next quarter. There will be a good choice and a lot of capacity in the market this summer which will probably have a downward impact on pricing. That said, fuel is starting to rise so the weaker carriers who don’t have hedges will likely see their costs increase.”

Hedging is where airlines lock in future prices for fuel to try to avoid big loses when it becomes costlier.

Aviation industry experts agree that Ryanair is better able to ride out lower fares that its competitors, as it can afford to focus on building up market share rather than on profit per passenger.

Capacity to fall says O’Leary

Ryanair hopes falls in fares will ease next year as a more than doubling of oil prices since January last year should encourage competitors to shed fuel-inefficient capacity.

“Europe’s airlines have either been taking on too much new capacity or have not been retiring loss-making capacity over the past two years because oil prices were falling. That should reverse itself this year,” Chief Executive Michael O’Leary said.

The airline said its rivals have been increasing flights to places like Portugal, Spain and Italy because they had reduced the number of planes flying to Egypt and Tunisia due to lower demand following terror attacks.