Ryanair has reported a loss of €35m for the months of October, November and December, in line with analysts' and the airline's own forecasts.

That contrasted with a net profit of €18.1m the same time the previous year.

The airline said that over the three month period - its third financial quarter - passenger traffic grew by 6% to 18 million passengers. 

But revenue per passenger was 6% lower as strong growth in ancillary revenue - passengers paying for extras like priority boarding and in-flight purchases - offset a 9% fall in fares. 

Chief executive Michael O'Leary, who is driving the airline's "kinder" and "gentler" programme of measures, said the loss was entirely due to a 9% fall in average fares and weaker sterling.

He said Ryanair responded to the weaker fares with seat promotions, which resulted in the 6% passenger growth.

Ancillary revenues grew by 13%, significantly faster than traffic growth due to strong customer uptake of reserved seating, priority boarding, and higher credit card fees. 

Ryanair has left its full year profit guidance at about €510m as it said that market pricing "remains soft, but is no longer declining". The airline said that forward bookings in its fourth quarter and into next fiscal year are running significantly ahead of last year, but at weaker yields.

It said that based on current visibility, it expect fourth quarter yields to decline by about 8%, slightly better than the 10% decline previously guided.  

Ryanair shares closed 6.6% higher in Dublin trade today, having previously risen by as much as 7%.

"As full year traffic will be slightly stronger, and our focus on cost control delivers a 4% fall in Q4 (ex-fuel) unit costs, we are now confident that the full year net profit outturn will finish in the range of €500m to €520m as previously guided," CEO Michael O'Leary said.

The CEO also said that Ryanair is 90% hedged for the full year of 2014 at a cost of $980 per tonne. The airline has taken advantage of recent oil prices and dollar weakness to extend its hedge position to 90% of the full year of 2015 at $960 per tonne. This should deliver fuel cost savings of about €80m in 2015, he added.

During the third quarter, Ryanair announced a series of measures to improve its customer service. These include a more user-friendly website, a free small second carry-on bag, a 24 hour grace period to correct minor booking errors, reduced boarding card and airport bag fees and a new service to cater for group and business travel.

Last week also saw the airline return to allocated seating on all flights. "The uptake of reserved and allocated seats has grown significantly in the last weeks of January, and it now appears that sales of reserved/allocated seats will exceed the revenue loss from cutting airport and bag fees," it said.

It is also working on broadening its distribution based and has partnered with Google's European "flight search" engine.