Ryanair has warned that it might make a loss this year as spiralling oil prices take their toll. The budget airline saw profits during the first quarter fall 85% to €21m (£16.6m) and chief executive Michael O’Leary said at best Ryanair would only break even this year.

The company’s fuel bill rose 93% to €367m (£290m) in the first quarter, representing almost 50% of its operating costs, compared with 36% a year ago.

In spite of the increased fuel costs, O’Leary said Ryanair’s fares would remain low and it remained committed to its no fuel surcharge policy.

“Consumer confidence is plummeting, and we believe this will have an adverse impact on fares for the rest of the year,” he said .“We now believe that our average fares for the year may fall by as much as 5% if European airfares plunge this winter.

“Ryanair will lead this downward pricing at a time when most of our competitors are hoping to raise fares and fuel surcharges.”

The airline saw a 25% growth in ancillary sales during the first quarter, compared with a 19% increase in traffic, and O’Leary said he expects this growth to continue for the rest of the year.

Charges for mobile phone usage on flights will soon provide an additional revenue stream for the airline. Passengers will shortly be able to use their mobile phones and Blackberry’s on 10 Dublin based aircraft in a trial which will expand to almost 40 aircraft by the end of the year.

Ryanair took advantage of a recent dip in oil prices to hedge 90% of its fuel for September at $129 a barrel and 80% for the third quarter at $124 a barrel, but it has not fixed the price for any of its fuel requirements for the fourth quarter.

Its forecast end of year result of between breakeven and a €60m loss is based on a fourth quarter fuel price of $130 a barrel.

By Linsey McNeill