Can Airlines Fight Fuel Costs with Lower Fares?

Shares of European airlines tumbled Monday after budget airline Ryanair said its profit fell 85 percent in the recent quarter and warned it might not make money this year.

AP

But at a time when airlines are doing everything to cut costs, Ryanair will also be lowering fares in an effort to gain market share while oil price remain high.

"Fares are going to come down this winter. Ryanair is going to be at the forefront of fares," Howard Miller, deputy CEO and CFO of Ryanair told CNBC.

"Out of this difficult period, low fares will emerge stronger, we get greater market share."

Whether investors have confidence in the strategy is another matter, though, as shares of the Irish airlines sank 22 percent on the London Stock Exchange.

Shares of British Airways were down 4.5 percent, while Ryanair's rival easyJet fell 8 percent.

Other airlines like Air France-KLM and Lufthansa were down 2.2 percent and 3 percent respectively.

Ryanair last week announced it would be cutting its flights our of UK airport, Stansted.

"Stansted is our highest operating cost base in Europe and it doesn't make economic sense to fly through the winter and just support the airport and pay them high charges," Miller said.

The airline would also be improving its automatic check-in process to reduce handling costs, he said.

"The UK economy is 35% of our business," Miller told "Squawk Box Europe."

"So whatever we do, we are going to be impacted. We also have about 12 percent of our business in Ireland, and the Irish economy is under pressure as well. So, pretty much 45 percent of our business is under pressure."

Despite its traffic increasing by 19 percent to 15 million and first-quarter revenues rising by 12 percent to 777 million euros ($1.2 billion), the Ryanair's latest results were still plagued by the high oil price, with its fuel bill rising 93 percent, almost doubling from the previous quarter.

With approximately 28 airlines going bust as a result of high energy prices, Miller believes that there are still more airlines to run into trouble and therefore less players in the market.

"It will take two forms: you will have airlines go out of the business, but also you will have a lot of consolidation," he said.

Ryanair is not looking at any deals, though, as the ailing airlines have nothing to offer the budget carrier.

© 2008 CNBC.com