Half of Ryanair's passengers will be flying free by 2009, the airline's chief executive, Mr Michael O'Leary, has pledged.

In an interview with German newspaper Der Tagesspiegel, Mr O'Leary predicted that Ryanair fares would drop by an average of 15 per cent this year, with one out of every five tickets sold at no charge.

He said the average ticket price would fall by 5 per cent annually over the next five years as passenger numbers grew by five million annually.

Der Tagesspiegel also reported that Ryanair was to decide on a new hub in Germany this autumn, and would base four aircraft there from next year.

A spokesman for the airline denied this yesterday, however, saying that the new hub could be placed in any one of "several" EU states.

He confirmed that Ryanair had no plans to expand into the 10 states due to join the EU next year however.

Ryanair is committed to establishing a new hub each year between now and 2008. The company has also said it will launch 10 new routes each year over the same period.

The company has meanwhile confirmed that it will be introducing a range of new features on its flights over coming months.

The changes will include leather seats, which come automatically with the airline's fleet of new aircraft, and the introduction of an in-flight magazine.

Ryanair has also launched the sale of travel insurance on board its flights from the Republic and the UK.

Staff will be selling cover for one month's EU travel for £15 sterling (€21.40), with policies provided by Primary Insurance.

Goodbody Stockbrokers analyst, Mr Joe Gill, described the frills move as "an interesting strategic step". He pointed out that the service modifications would help Ryanair reach its target of raising ancillary revenues faster than passenger fare income, which offers less scope for increasing margins.

He said magazine advertising was sure to generate substantial revenue, and suggested that leather seats would enable the company to meet its fast turnaround targets by being easier to clean.

Merrion Stockbrokers analyst Mr John Mattimoe said the new moves did not represent a radical departure for Ryanair, adding that any effort to improve service without affecting costs should be welcomed.

Mr Mattimoe said recent seat sales at the company suggested that yields remained under pressure. This implies that "a significant moderation in the pace of decline in Ryanair's yield is unlikely to be imminent", according to the analyst.

Mr Gill said he was surprised to learn of Mr O'Leary's expectation of flying half of its customers free of charge before the end of the decade.

"All of this is designed to put the wind up potential competitors in the hotly contested German market," he remarked.

Shares in Ryanair closed 10 cents higher at €6.18 last night.