Wed Nov 2, 2005 3:26 PM GMT

LONDON (Reuters) - Ryanair (RYA.I: Quote, Profile, Research), Europe`s largest airline by market value, believes revenue from inflight gaming and gambling could eventually do away with the need to charge air fares, Chief Executive Michael O`Leary said on Wednesday.

Ryanair gave away about a quarter of its seats last year and that figure could rise to between 50 and 100 percent depending on how ancillary revenues grow, O`Leary said.

``Ultimately entertainment will be where the money is,`` he told reporters, while answering questions about his plans to introduce gaming and gambling onboard, probably in 2007.

``It would transform ancillary revenues and profits,`` he said. ``We`ll probably announce a gambling partner (company) in the next 2-3 months.``

Besides plans for inflight gaming and gambling, the airline already generates ancillary income from services such as hotel bookings and car leasing.

EARNINGS NEXT WEEK

Ryanair is set to announce earnings on November 7 for the half year to September 30.

``They`ll be fine,`` O`Leary said, declining to elaborate.

He has been talking about expanding inflight entertainment on Ryanair for more than a year, during which time the airline introduced and then withdrew an onboard individual video and entertainment system.

Ryanair had hoped a quarter of its annual 35 million passengers would use the system, while only 7-8 percent did, O`Leary said.

He said the airline now has similar hopes for gaming and gambling, and sees potential revenues of ``a multiple of euros per passenger.``

Ryanair also announced it would offer 2 million free seats, a move designed to pressure full-service airlines such as British Airways (BAY.L: Quote, Profile, Research) whose fuel surcharges have widened the gap on fares between budget and traditional airlines.

Ryanair is fully hedged until the end of next March and has refused to impose a fuel surcharge, betting that low fares and even free tickets will draw passengers away from rivals.

``The more we can put pressure on high-priced airlines, the more we can convince them there`s no point competing with us (on short-haul European routes),`` O`Leary said.