Ryanair, the no-frills carrier that has become the world’s largest international airline in terms of passenger numbers, has given a grim forecast of difficult times ahead.

Michael O’Leary, the chief executive of Ryanair, said yesterday that profits in the second half of this year would be zero or even negative as competition for passengers becomes more intense.

Airlines across Europe have begun to report softening demand in the past couple of months and Mr O’Leary indicated for the first time yesterday that this was not just a blip but a longer-term problem.

Ryanair’s load factor, the measure of the proportion of seats that it fills on its flights, fell 2 per cent last month, while British Airways reported that it had seen a 1.5 per cent fall in its load factor.

Ryanair and easyJet, Europe’s second-largest budget airline, are responding to this weakening demand by cutting prices and a lengthy price war seems to be inevitable.

Mr O’Leary said: “By the winter we are expecting zero profit growth and perhaps even a slight loss. That is going to mean it is never going to be cheaper to fly across Europe.”

The airline is forecasting that its aggressive price cuts should keep passenger numbers growing at over 20 per cent in the coming year but profit growth will fall to about 5 per cent.

In comparison, Ryanair increased profits by 33 per cent to €401.4 million (£272 million) on revenues up 32 per cent to €2.2 billion in the past year.

The company’s share price fell 6.7 per cent to €5.00 yesterday after the grim forecast for the coming year. Other airlines also suffered. British Airways fell 8½p to 456p and easyJet fell 38p to 525p.

Mr O’Leary said: “We have a very conservative outlook for the next year. Yields are softening and we will respond with even lower fares. All carriers are reporting softer yields at the moment and winter could be very difficult in terms of growth and prices.”

No one in the airline sector has yet identified a single cause for the unexpected weakening in demand. EasyJet has blamed concern over aviation’s contribution to climate change, but Mr O’Leary dismissed this theory.

Instead, the Ryanair boss blames a range of factors, including higher taxes and air-port charges, rising interest rates and passenger frustration with security delays.

Mr O’Leary’s gloomy forecast overshadowed a strong performance by Ryanair. In the year to the end of March, passenger numbers grew 22 per cent to 42.5 million.

This took the Irish carrier past Lufthansa, which carried about 35 million people, to become the largest international airline in the world. British Airways is the fourth-largest, carrying about 28 million passengers a year.

Ryanair’s strong profit growth last year will enable it to return €300 million to investors through a share buyback. However, Mr O’Leary gave warning that the weakening market would mean this buyback would not be repeated next year.

He also spoke yesterday of his determination to pursue Aer Lingus, the other Irish airline. Ryanair bought a 25.2 per cent stake in Aer Lingus last year but its takeover offer has been referred to European competition authorities.

Mr O’Leary admitted that it was likely that the European Commission would block the bid and may even force him to sell the Aer Lingus stake. In either situation, he said, Ryanair would take legal action to reverse the decision.

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