Ryanair is taking a high-stakes gamble to keep low air fares after Michael O'Leary's bet on fuel prices backfired spectacularly.

The airline will cut ticket prices by more than 10pc this winter in a desperate bid to keep passenger numbers up, despite the deepening recession.

It marks a dramatic reversal of strategy at the airline, which just two months ago said it would raise fares by 5pc this year to compensate for record oil prices.

Ryanair now plans to absorb the massive oil rises itself and continue to push fares down. The strategy could mean the airline loses as much as €60m next year.

The stock market reacted with fury to the apparent u-turn, and repaid Ryanair by wiping €1.2bn from the airline's share price in just 10 minutes yesterday.

Analysts who advise investors on their Ryanair holdings were largely unimpressed by the move.

"For them to have changed tack in such a short space of time does create a real crisis of confidence," one of those analysts said. "It looks as if they gave us misleading information in June, and that's not going down well."

One of Europe's most respected aviation analysts, ABN Amro's Andrew Lobbenberg, added that Ryanair's guidance could now be taken "with a pinch of salt".

The airline's latest gamble comes after its punt on fuel spectacularly backfired. The company failed to secure contracts to buy fuel at the $100-mark last year, believing prices would fall. Oil has since topped the $145 mark, leaving Ryanair massively exposed.

It was estimated last night that this cost the company potentially hundreds of millions.

In the three months to June 30 alone, Ryanair's fuel rocketed 93pc to €367m. The airline has now put in place contracts to buy 90pc of its September fuel at $129, and 80pc of fuel for October to November at $124.

Chief executive Michael O'Leary, who saw €54m of his personal wealth evaporate in the stock-market mauling, last night admitted he got it wrong.

"There's no doubt I was overly optimistic two months ago, and, I can promise, you won't see that again while I live and breathe," he said.

Airlines across the world who have been losing passengers to growing economic pressures have responded by raising prices in an attempt to stay afloat.

But Ryanair has opted to go down the opposite route and will instead launch an aggressive new low-fares drive to entice customers. "We did this [massive sales] after 9/11, after the Madrid bombings, after both Gulf wars -- and we're doing it again now," Mr O'Leary added.

"We've been preparing for this downturn for the last 12 months, that's why we've got bundles of cash in the bank."

However, some industry experts last night poured scorn on Ryanair's strategy, insisting the airline needed to "get real" and deal with rising oil prices by raising fares, rather than burning through shareholder cash.

"Ryanair are taking a gamble here alright," Davy's analyst Stephen Furlong said. "The idea is that by keeping up their growth, profits will eventually come back to where they were.

"That can only happen if oil falls, or if competitors go bust and it becomes 'last man standing'.

"In the long term, I think it's the correct strategy, but it doesn't work well in the short-term."

Ryanair's Europewide price slashing will kick off in the coming weeks, with massive sales promised by the airline.

Deputy chief executive Michael Cawley told the Irish Independent that as many as 20pc of all Ryanair seats could be "free" this winter, up from between 10 and 12pc last year.

Record numbers of seats will also have taxes and charges subsidised, he added. To keep costs down, Ryanair is also planning to trial its first "baggage-free" flights.