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Aer Lingus says Ryanair discounting to hit EU airlines

By Conor Humphries

DUBLIN (Reuters) - The profitability of European airlines will be squeezed in coming months due to heavy discounting by Ryanair (ISE:RY4B), its Irish rival Aer Lingus (ISE:EIL1) said on Friday as it cut its profit forecast for the year.

Ryanair, which flies more international scheduled passengers than any other European airline, said last week it planned to introduce "aggressive" pricing to maintain volumes amid signs of weak demand in the autumn.

The threat of a price war comes as airlines struggle with high fuel costs and weak consumer confidence, although a lack of growth in capacity in recent years has kept ticket prices relatively stable.

"Ryanair has opened the taps," Aer Lingus Chief Executive Christoph Mueller said, adding price cuts were being felt across Europe and with "significant intensity" in markets such as Italy and Poland.

"We are less affected than other carriers in Europe, but clearly the offering currently on the market on some of the Ryanair routes is below their own cost level," Mueller said. He said he believed Ryanair was selling tickets at up to 20 euros per passenger below cost on some routes.

A Ryanair spokesman said it "would not comment on the excuses of high-cost competitors."


Ryanair issued its own profit warning last week and with Aer Lingus following suit, it indicates pricing pressure will spread across the sector, said Investec analyst Gerard Moore.

Aer Lingus cut its profit forecast for the year by 13 percent, saying its profit for the full year would be around 60 million euros, down from a forecast of 69 million euros (£57.9 million) it made at the end of July.

"This shows Ryanair's profit warning wasn't just a company specific issue and there's an impact on the broader market," said Moore. "It's worrying for the whole sector."

In July, Aer Lingus reported weak bookings in July and August due to unusually warm weather in Ireland, but said it hoped to make up for that shortfall in the remaining months of the year.

In Friday's statement the carrier said despite more aggressive pricing it did not now expect to recover the lost volumes.

It said it would cut short-haul capacity in the final three months of the year by 3 percent, but that long-haul bookings for the remainder of 2013 were ahead of last year.

Aer Lingus shares were down 7.6 percent at 1.46 euros by 1300 GMT compared with a fall of 0.6 percent on the Thomson Reuters European Airlines Index (.TRXFLDEUPUARLI)

Aer Lingus also said it had seen significant weakness in the number of UK travellers to Ireland and expected currency fluctuations to cost it around 10 million euros over the course of the year. ($1 = 0.7514 euros)

(Editing by Jane Merriman and David Holmes)