Ryanair, Europe's largest airline, has pledged to cut fares by up to 20 per cent this winter in an effort to maintain passenger numbers as the economic downturn tightens its grip.

Michael O'Leary, the chief executive, said yesterday he believed that the recession in Europe will be deep and long and his airline would respond by slashing fares to maintain demand.

The budget carrier's average fare this summer stood at €47 (£38), but Mr O'Leary expects that to fall to €40 or less, including charges.

“It has never been cheaper to fly than this winter,” he said.

His comments came as Ryanair revealed a 47 per cent fall in post-tax profits to €215 million for the six months to September 30.

The airline has been hammered by softer demand and record oil prices, which led to its fuel bill more than doubling to €788.5million in the first half.

Oil prices hit a peak of $147 a barrel in July but have since fallen to less than $70 and Ryanair expects the price to remain low throughout the winter. However, the gains from lower fuel bills will be offset by reduced revenue from cut-price fares.

The airline is therefore standing by its prediction that it will only break even this financial year.

Mr O'Leary said: “We think fares will be much lower this year. Oil will stay at around $70 a barrel, but average fares will be 15 to 20 per cent less, so we are keeping our breakeven target.”

By contrast, the strategy at British Airways is to leave fares unchanged and sacrifice passenger numbers. The difference reflects BA's greater reliance on business-class passengers and its determination to keep the margins on these fares high. However, BA is also expected to be hit by the downturn when it reports its first-half results on Friday.

Andrew Fitchie, aviation analyst at Collins Stewart, said: “Ryanair has flagged average fares down 15 per cent to 20 per cent. This is a clear signal that airline yield management systems are struggling to fill seats and that they are having to heavily discount to stimulate demand.”

Mr O'Leary said that as passenger numbers decline across Europe the pace of airline bankruptcies will increase. He expects five or six more carriers to go out of business by Christmas, while others would merge with rivals. Several have already been grounded, including Sterling, a Danish airline, two weeks ago, and XL in September.

Mr O'Leary said: “I think this recession will last 18 months and it will be deep, but this provides an opportunity to get rid of crappy airlines and we will also benefit from a drop in oil and plane prices.”

Ryanair's expectation that a recession in Europe will keep oil prices low means that the carrier will be unhedged during its fourth quarter - the first three months of 2009.

However, the airline has seized the opportunity presented by recent falls in the oil price to protect itself from higher prices next year. It has hedged 25 per cent of its fuel consumption at $76 a barrel between April and June and at $79 between July and September.

Mr O'Leary said that he would like to have hedged more, but the meltdown in financial markets had made it difficult to find banks willing to sell this sort of protection.

“The market is so illiquid because so many banks have got out of these sorts of instruments that it was difficult for us to hedge more,” the Ryanair boss said.

“We had originally wanted 50 per cent hedging but we could not get it. The fuel companies don't trust the banks any more, so it is very difficult to arrange.”

Ryanair used Goldman Sachs and Morgan Stanley to arrange its hedges. Mr O'Leary said that many smaller banks had left the market.

The carrier also reported its October traffic figures yesterday. Passenger numbers increased by 18 per cent to 5.35 million for the month and its load factor - a measure of the take-up of capacity on each flight - held at 85 per cent.

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts