Ryanair is predicting an 'irrational' airline price war that could be great for customers

Budget airline tickets aren't exactly expensive right now thanks to low oil prices, but Ryanair thinks the cost of flying could fall even further.

Irish no-frills airline Ryanair reported its full-year results this morning, which revealed a 12% jump in revenue to €5.65 billion (£4 billion, $6.16 billion) and a 66% rise in profit after tax to €867 million (£613 million, $946 million).

But it warned investors not to expect a similar rise next year, due to competition from rivals on ticket prices.

Here's Ryanair (emphasis ours): 

While our traffic growth this year will be strong, (up 10%), it would be foolish not to expect some irrational pricing response from competitors who cannot compete with our lowest costs and fares.  Ryanair will remain vigorously “load factor active/price passive”.  Therefore, even with the benefit of lower oil, aircraft and financing costs we may suffer periods of fare/yield weakness especially during the H2 winter season.

What that basically means is that Ryanair plans to focus on filling its planes — measured by load factor — to reap benefits from efficiency, rather than cutting ticket prices to attract more customers.

But if rivals do just that, it could hurt Ryanair's yield — a measure of revenue per customer, per mile flown — as it's forced to either trim prices or sees customer numbers fall. 

If all this were to happen, it would be good news for consumers, as airlines would be offering cheaper seats in a bid to win business.

Ryanair, which celebrates its 30th birthday in July, has itself upped competition with its main European rival, easyJet, by focusing on customer service, something it was once notorious for being bad at. Ryanair has made changes including allowing customers to select seats at check-in and take an extra piece of hand luggage on board for free.

The company praised its "Always Getting Better" transformation plan for helping boost customer numbers by 11% to 90.6 million in the year. This is what boosted revenue and profits, along with cheap oil. 

A drop in oil prices cut costs by 5% last year, although it was a smaller benefit than at other airlines. Ryanair buys 90% of its fuel well in advance through "hedging" agreements to guard against a jump in price. This practice will also pin back growth next year as oil is hedged at $92 (£59) a barrel, well above its current price of around $65 (£42) a barrel.

Aer Lingus battle

Ryanair also used its results to attack the UK's Competition and Markets Authority (CMA). The watchdog has ordered Ryanair to sell its 29.8% stake in rival Irish airline Aer Lingus. The CMA argues the stake is anti-competitive and also puts off potential bidders for Aer Lingus.

British Airways owner IAG has since been bidding for Aer Lingus, but an appeal by Ryanair to have its sell order revoke in light of the buyer interest was rejected. Ryanair said today: "We believe the CMA will be totally discredited if they do not reverse this manifestly erroneous ruling."

The company added: "In the meantime our approach to the IAG offer remains unchanged.  The Board of Ryanair will consider any offer (should we receive one) from IAG on its merits, if or when it is received." IAG and Aer Lingus are negotiating.