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Despite Ryanair’s outspoken CEO, its business model is one that all low-cost carriers and now legacy airlines are looking to emulate by keeping prices low and ancillary fees high.

Ryanair hiked its full-year profit forecast on Monday as strong demand in Northern Europe lifted average fares dramatically in the last three months of 2012.

Dublin-based Ryanair, Europe’s top low-cost airline, which has used its size and low costs to undercut struggling flag carriers, hiked its profit forecast to 540 million euros ($728 million) for the year to March, up from an earlier 490-520 million euro range.

“We saw strong demand out of the UK, out of Germany and out of Scandinavia and that has gone straight to our bottom line,” Chief Operating Officer Michael Cawley told Reuters.

Strong demand in the run-up to Christmas and a high uptake of reserved seating options helped to lift ticket prices in northern Europe well above the company’s forecasts, he said.

Sales were not as buoyant in Southern Europe, with Spain in particular “very weak,” and fare growth in Italy flat, he said.

An 8 percent rise in average fares lifted the airline to a profit of 18 million euros in the traditionally weak three months to December, compared with an average forecast by five analysts polled by Reuters of a 5 million euro loss.

Fare growth compared with 5 percent in the six months to September and was way ahead of the 3 percent average forecast by three analysts polled by Reuters.

Average fares will grow at a slower pace in the three months to March, however, Cawley said.

Ryanair has been able to sweep up customers as traditional rivals cut back capacity in the face of slow economic growth in Europe and high fuel costs.

Revenues climbed 15 percent to 969 million euros in the quarter, better than the 9.2 percent revenue growth its chief low cost rival easyJet reported last week.

Ancillary revenues, which exclude ticket prices, were up 24 percent from a year earlier.

“Demand is exceeding supply in the short-haul market and Ryanair is capitalizing on it,” said Davy stockbrokers analyst Stephen Furlong. “The market will be very happy with these numbers.”

Higher fares helped Ryanair absorb a 24 percent hike in fuel costs compared with the same quarter last year. Fuel cost inflation is expected to ease to 5 percent in the year to March 2014 from 14 percent in the current financial year.

Excluding fuel, unit costs rose 4 percent in the quarter due to increases in Italian air traffic control costs, Spanish airport charges and the strength of Sterling to the Euro, Ryanair said.

Next year fares will continue to rise though capacity will likely only grow by 2-3 percent in the financial year to March 2014, Cawley said, down from the 4 percent rise forecast in the current year, due to the lack of new plane deliveries planned.

The airline remains in “protracted negotiations” with Boeing about a large plane order, Cawley said.

In a separate statement, Ryanair said it remained confident European Union antitrust regulators would approve its bid for Irish rival Aer Lingus by March.

Ryanair’s shares opened down 1 percent on Monday at 5.42, compared with a fall of 0.2 percent on the broader Irish market . ($1 = 0.7421 euros)

Reporting by Conor Humphries. Editing by Richard Pullin and Helen Massy-Beresford.


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Tags: earnings, ryanair

Photo credit: Passengers board a Ryanair plane parked at Girona airport, September 20, 2012. Albert Gea / Reuters

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