Jeremy Warner's Outlook: Even O'Leary is hitting the headwinds as fuel costs take their toll on Ryanair

It is part of the entrepreneur's DNA to be eternally – some would say annoyingly – optimistic, and few come more so than old motor-mouth Michael O'Leary, chief executive of Ryanair. Thus Mr O'Leary sees nothing but opportunity in the present downturn, from which, he confidently predicts, Ryanair will emerge bigger and stronger.

However, in the meantime he's having a much more torrid time of it than he would like. Most of this turbulence is caused by high fuel prices, but at least some of it, as Ryanair heads for its first annual loss since anyone can remember, is self-inflicted. Did he really need to keep on growing capacity in the face of self-evident signs of economic trouble to come?

The upshot is that although passenger numbers are still growing strongly – albeit not as strongly as previously hoped – yields (or the price paid per head) fell 8 per cent in the first quarter to the end of June. For the year as a whole, Mr O'Leary now expects a fall in average fares of 5 per cent, against expected growth of the same magnitude the last time he opened his mouth on such matters.

Ryanair presents this fall as a deliberate act of land grab. While other airlines are trying to raise their prices, with fuel surcharges and the like, Ryanair will be reducing its own so as to add market share. What Mr O'Leary studiously ignores is that he is himself part of the problem of over-capacity he complains of. Good for customers, no doubt, but not so good for him.

Nor has Ryanair been as brilliant at managing its fuel costs as you would expect. Up until last June, the company was completely unhedged on fuel costs, this in expectation that prices would fall. Now, with oil prices starting to fall, it emerges that Ryanair has reversed its policy and hedged itself for the second and third quarters, possibly unnecessarily.

Ryanair has also been a victim of its bag-charging policy, with some at least of the reduction in yields down to reduced checked-in baggage charges as passengers switch to online check-in and carry on baggage facilities. Next thing is that Mr O'Leary will charge you for going to the loo in an effort to compensate.

Still, on one thing Mr O'Leary is undoubtedly right. Ryanair will emerge one of the winners from the present shakeout. With already wafer-thin operating costs compared with rivals, he managed a further 6 per cent reduction in the first quarter ignoring fuel. Mr O'Leary also famously sits on a €2bn-plus cash mountain of mostly forward booking revenues. Despite mistakes, he retains a winning business model.