Shares in airlines dropped in the UK after low-cost carrier Ryanair announced an 85 per cent decrease in first-quarter net profits and issued a warning that it could well see an overall loss for the full fiscal year.

British Airways saw its shares decline by 5 per cent before lunchtime. Britain’s largest carrier is expected to announce cutbacks in capacity on Friday when it releases its first-quarter results.

The downturn at Ryanair, with after-tax profits at £21 million for the three-month period ended 30 June, is being attributed to the high cost of jet fuel. The Dublin-based carrier reported that fuel costs had risen by 93 per cent in the last quarter, and now counted for approximately 50 per cent of its operational costs, up from last year’s 36 per cent.

The budget airline warned that its full-year loss could reach £60 million if oil prices remain at current levels and fares decrease. If Ryanair does show a loss for the year, it will be the first full-year loss in 20 years, since the carrier re-invented itself as a low-cost airline.

Ryanair reported that it has taken advantage of the recent dip in the price of oil to hedge its requirements over the next six months. For the second quarter it hedged 90 per cent of its requirements at $129 per barrel, and for the third it hedged 80 per cent at $124.

“On the basis of our existing fuel hedges, Q4 oil prices at approximately $130 per barrel, and average fares falling by 5% for the full year, we expect to record a full-year result of between breakeven and a loss of £60m”, noted the carrier’s chief executive, Michael O’Leary, in a prepared statement.

www.ryanair.com