Shares in Ryanair today fell sharply as the discount carrier issued a profit warning because of intense competition.
The Dublin-based carrier said competition was likely to cut net profits by 10% to €215m (£148m) in the current tax year. Investor confidence was also hit as investment bank Dresdner Kleinwort Wasserstein downgraded Ryanair shares to "hold" from "add" because the 2004 outlook was worse than expected.
Ryanair shares stock slumped nearly 27% to €4.9 on the Dublin stock market. It fell a similar amount in London.
Although Ryanair warned that profits would fall for the first time since its flotation, the company posted a profit of €47.5m in the third quarter to December 31, a 10% rise, with passenger numbers up by 54% to 6.1 million.
Ryanair, bracing itself for an EU decision next week that it received illegal discounts from Belgium to fly to Brussels Charleroi airport, blamed intense price competition from airlines across Europe for the drop in profits.
After taking a drubbing from no-frills carriers, established airlines such as British Airways have responded aggressively to the low-cost challenge, by cutting their own prices. BA has also picked on Ryanair's Achilles heel by pointing out that the Irish company flies to airports far from city centres.
But Ryanair's strategy of flying to small regional airports in return for payments from regional authorities is under attack. The EU next week is expected to order Ryanair to pay back millions of pounds it received for flying to Charleroi airport in Belgium as the payments constituted illegal subsidies.
The EU is also expected to limit the Irish airline's cut-rate contracts with airports to three years, the airline said. That means it could lose millions in annual incentive payments that it receives from publicly-owned continental European airports.
The European commission's verdict could be a big blow for Ryanair, which relies more than other discount airlines on winning financial concessions from regional airports, but the decision will affect the entire European sector.
Of 85 European airports Ryanair flies to, half are state-owned. However, only a fifth of its traffic passes through publicly owned airports with which it has negotiated discounted charges.
