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Two Irish Ryanair Boeing 737-800's sit in Marseille-Marignane's airport tarmac, southern France in this Novwember 2006 file photo.

Anne-Christine Poujoulat/AFP/Getty Images/Anne-Christine Poujoulat/AFP/Getty Images

Ryanair , Europe's largest low-cost airline, saw its profits squeezed by soaring fuel costs in the three months leading up to June, but said higher sales this summer would keep it on track to hit its profit target for the year.

The Irish airline, which operates more than 1,500 flights a day, boosted revenue by 29 per cent in the quarter compared to the same period last year as it carried 3 million more passengers and boosted income from its "ancillary" sales which include the extra charges it levies for hold baggage and in-flight food and drink.

But a 50 per cent surge in fuel prices cost the airline the equivalent of $201-million (U.S.) more than planned, pushing profits below market expectations. Its shares opened down 1.73 per cent at €3.39.

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"It's a solid performance, even if the costs may have surprised some," said Brian Devine, an analyst at NCB stockbrokers.

"But there is no real catalyst for the share price. The market's profit expectations for the year are well ahead of Ryanair's and there is nothing here to change that," he said.

The airline made a profit after tax of €139.3-million in the first quarter, up one per cent over a year ago but well short of the €151-million forecast by analysts polled by Thomson Reuters.

It maintained its profit forecast for the year of €400-million, unchanged from the previous year, although analysts have been forecasting an even better €447-million.

Full-year profits will depend heavily on the second quarter as the company bets more heavily on summer sales, with it planning to cut back capacity during the winter.

Ryanair said a 10 per cent growth in traffic in the first half would be followed by a four per cent fall in the second half to give four per cent growth for the year as a whole.

Average ticket prices will rise by 12 to 15 per cent in the second quarter, it said, but the company was not making a prediction for winter sales.

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Traffic was up 18 percent in the first quarter with fares up 11 per cent and ancillary sales up 22 per cent.

"We are going to have a very strong Q2 and we are confident that despite high oil prices we can deliver net profit of €4000-million," Chief Financial Officer Howard Millar told Reuters in a telephone interview.

"Consumers are clearly spending money this summer but we will have to see what the winter brings," he said.

Ryanair, which has lost tens of millions of euros in the past through poor fuel price hedging, said it was 90 per cent hedged on fuel at around $86 a barrel for the year to March.

But the airline said it was disappointed by Boeing's decision to scrap plans for an all-new 737 short-haul jet and instead upgrading its current design with new engines.

Ryanair exclusively flies 737s and has said it could be in the market for up to 300 aircraft for delivery by 2016.

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"Our preference would have been for a redevelopment," said Mr. Millar. "The key driver will be pricing and how much fuel it would save. Its very early days, but clearly it's something we have to look at."

Mr. Millar said Ryanair would continue to cut winter capacity and focus on summer sales as long as fuel costs and airport charges are high.

"It doesn't make commercial sense to fly aircraft in the winter when you are paying over $100 per barrel for fuel. If fuel prices were to come down, we certainly would consider changing that," he said.

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