Ryanair has posted a 550% rise in quarterly profits but warned that its price war with rival carriers is likely to result in lower-than-expected profits for the full year.

Net first quarter profits rose to €136.5 million due to an unexpected drop in fuel costs, which fell 42% to €214 million. Ryanair was largely unhedged last summer as fuel prices rose to a record $147 a barrel but it has locked in much lower prices this year.

But the budget carrier expected full-years profits to come in at the low end of its earlier €200-300m forecast range.

It cited cutting fares by an average of 13% in the first quarter resulting in an 11% rise in passenger numbers to 16.6 million.

The aggressive price-cutting has reduced the yield per seat. The airline said that yields in the second quarter could be more than 20% below last year.

The airline is on track to carry 67 million people this year, making it the largest airline in Europe by passenger numbers.

Michael O’Leary, chief executive of Ryanair, said: “Our outlook remains cautious for the remainder of the fiscal year. Traffic growth is strong but at much weaker yields due to the recession and the impact of tourist tax in Ireland and the UK.

“The winners in a deep recession will always be those companies like Aldi, Lidl, McDonalds, and Ryanair who offer the lowest prices and the best service to consumers. We will continue to expand as others fail. We will also continue to drive down costs and pass these on in the form of lower fares right across Europe.”

Ryanair announced last week that it would cut the number of aircraft it has based at Stansted airport near London from 40 to 24 this winter because of high UK air taxes. The carrier is also expected to make similar cuts at its Dublin base.