UPDATE 1-Ryanair launches European airline price war

(Adds CEO quotes, updates shares)

By Pete Harrison

LONDON, May 9 (Reuters) - Irish low-cost airline Ryanair (RYA.I) said on Wednesday it was launching a price war against other European airlines, giving away 10 million seats virtually free in its biggest ever promotion.

The 5-week promotion came after four days of weakening shares in the sector and as its closest rival, easyJet (EZJ.L), said passenger numbers were being hit by higher taxes, rising interest rates and environmental concerns.

"I'd expect this to put further downward pressure on prices, put further pressure on Ryanair's yields, and on everyone else's yields, not just in the UK, but all across Europe," Chief Executive Michael O'Leary told reporters. "We're launching a price war in Europe."

Ryanair normally offers a fraction of its seats at discount prices, but Wednesday's promotion represents close to half its capacity.

"The rest of the competition are suffering," O'Leary added. "Their load factors are down, and their yields are down. Let's go in and kick them all while we can."

EasyJet's shares, which were already 2.5 percent below their opening price, fell a further 3.5 percent by 1357 GMT to 594 pence.

The airline had already promised to cut prices to lure in more passengers.

EasyJet's shares have lost 19 percent since both Ryanair and British Airways (BAY.L) noted a weakening in April trading last Thursday. British Airways shares were down 1.4 percent by 1357 GMT, in its fourth day of losses, while Ryanair shares were down 0.7 percent.

Ryanair's 10 million seats to European short haul destinations will be at 10 pounds ($20), 15 pounds and 20 pounds, including air passenger duty.

"That is virtually free," O'Leary told Reuters on the sidelines of a news conference. "All you'll be paying is Gordon Brown's taxes," he added, referring to the new air passenger duty since February.

Ryanair also announced that if passengers found a cheaper fare from a rival airline on the same route, it would pay double the difference

"We've budgeted over a 5 week period we would pay out about 1 million pounds sterling in double the difference payments," said O'Leary. "That's based on 20,000 claims at an average of 50 quid. There won't be many calls. But we honestly have no idea."

((Reporting by Pete Harrison, Editing by Mark Potter/David Cowell; Reuters Messaging: rm://mark.potter.reuters.com@reuters.net