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OUTLOOK: . Fuel Surcharge By Stealth at Ryanair

Posted on: Wednesday, 3 August 2005, 06:00 CDT

Michael O'Leary has vowed that hell will freeze over before Ryanair imposes a fuel surcharge on its passengers. The budget airline's latest sparkling set of results demonstrates why. Ryanair's yields " in other words the average fare per passenger " rose by 3 per cent in the first quarter when the guidance had been that they would remain flat. This enabled the Dublin-based carrier to increase net profits by 21 per cent, well above the consensus forecast.

The reason yields rose is because Ryanair did not need to adjust its fares in order to put bums on seats. The reason it did not need to do that was because of the fuel surcharges levied on passengers by its full- service rivals, British Airways, Air France and Lufthansa. These maintained the price differential with Ryanair without Mr O'Leary having to resort to a surcharge.

As long as oil prices continue to rise, the full-service airlines will continue to reflect that in their fares and Ryanair will benefit from higher prices than it could otherwise charge. It is a fuel levy in all but name, as Mr O'Leary well knows, but by not appearing to charge it he scores another PR coup over his rivals.

BA could do some damage to the Ryanair model by resisting the next rise in the fuel surcharge " knowing that it is a lot better hedged against rising oil prices than its low-cost rival.

But Ryanair is becoming just too big to be intimidated, even by the likes of BA. The 30 per cent rise in traffic in the first quarter puts it on course to increase passenger numbers to 35 million this year. Ryanair even looks to have weathered the London terror attacks, which sliced 10 per cent off bookings in the immediate aftermath. The bloodbath Mr O'Leary famously warned of at the beginning of last year looks further away with every quarter's figures.

Source: Independent, The; London (UK)

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