Volcanic ash costs Ryanair _50m

Enemies of Michael O'Leary will be celebrating but there may be price hikes on the way for passengers of the budget airline.

Budget airline Ryanair’s profits were hit hard by the volcanic ash cloud, it was revealed today.

The company was forced to cancel nearly 10,000 flights this spring when the cloud made airspace over much of Europe unsafe, causing the company’s first-quarter pre-tax profit to fall 22% year-on-year to just €104.6m.

This is despite the fact that its first-quarter revenue rose by 16%, following a 5% increase in average fares and an 8% increase in traffic.

In fact, the company’s pre-tax profit rose by 1% if you ignore the 50 million euro exceptional cost of dealing with the ash cloud.

Fuel costs also rose due to the increase in oil prices.

Michael O’Leary was his usual robust self, claiming that Ryanair would continue to increase traffic, yields and profits. The company has maintained it forecast for full-year net profit to rise between 10% to 15%.

Whether passengers face more price rises so that the company will meet this forecast has yet to be determined.

When the news of the ash cloud first broke, Ryanair refused to compensate passengers as required by EU law, stating it would only reimburse passengers for “reasonable receipted expenses” capped to the cost of the original air fare they paid. It later capitulated and agreed to provide stranded passengers with EU-mandatory compensation such as meals and hotel accommodation.

Today, the company repeated its argument that EU rules are unfair to airfare providers as they are forced to operate under a more restrictive compensation regime than ferries and buses. It wants the EU to limit the liability of airlines to the price of the passenger’s ticket.

So far, its arguments have fallen on deaf ears.

What do you think?

Was Michael O'Leary right or wrong to try to refuse to compensate stranded passengers beyond the price of their ticket? Is it right that budget airlines should have to foot the bill for more expensive modes of travel due to random acts of God? Should you fly on a budget airline if you aren't happy with the budget ethos implied? Join the debate and tell us what you think using the comments box below!