Ryanair has posted a 59 per cent rise in profits to €239 million but has warned that this was an exceptional performance and that yields will fall by up to 15 per cent this year.

Chief executive Mr Michael O'Leary warned that weaker sterling and further air fare reductions over the next 12 months would slow its rate of growth to around 10 per cent but that it was still on track to become Europe's biggest airline within three years.

"Even though we will drive down fares and yields we expect to maintain our normal profit margins of just over 20 per cent and record our 16th consecutive year with a material increase in profits," he said.

Ryanair shares traded lower on news of the airline's warning about reduced yields. In Dublin, Ryanair shares closed down 13 cent at €5.68 recovering from a weaker stance in the morning.

Speaking to analysts in the afternoon, Mr O'Leary said there had been an overly negative reaction to its decision to reduce yields and that its business model was continuing to grow very strongly. Some analysts have indicated that they will be reducing their forecasts for 2004 by up to 9 per cent.

In the 12 months to the end of March, the number of passengers travelling with the Dublin-based airline rose from 11 million to almost 16 million, an increase of 42 per cent during one of the most difficult periods in the aviation sector. It expects to carry 24 million passengers this year.

The war in Iraq and the outbreak of Severe Acute Respiratory Syndrome (SARS) depressed tourist numbers internationally and prompted Ryanair to lower its fares even further to stimulate demand. Over the 12- month period the airline reduced its fares by 6 per cent and has signalled even bigger cuts in the coming months as it seeks to realise its ambition to become Europe's biggest airline.

Yesterday it announced the release of one million low-fare seats ranging in price from £19 sterling (€26.45) to £29.99 (€41.74) one way on flights during the peak summer months of June, July and August. It is unusual for an airline to offer such cheap deals during the holiday period but reflects continuing sluggish conditions in the tourism sector.

The airline has built up cash reserves of slightly more than €1 billion which will help it absorb fare reductions and meet the ongoing cost of financing new aircraft ordered from Boeing.

While yields will decline, Ryanair has said there is still much potential for its costs per passenger to be further improved. Weaker sterling will help reduce some of its operating costs while the productivity of its staff has continued to rise.

The airline recorded profit margins of 28 per cent on its activities which it expects will reduce to around 20 per cent this year, the highest in the sector.

During the 12 months, Ryanair opened 50 routes, including 12 formerly operated by Buzz which has been subsumed into the Irish airline. It has opened two new bases, at Milan Bergamo and Stockholm's Skavsta. These new routes will generate "abnormal" traffic growth of 50 per cent in the coming year, according to Mr O'Leary. In total, it operates 125 routes.

Ryanair reported a 35 per cent increase in revenue to €842.5 million with €101 million coming from ancillary activities including commissions earned from services such as car hire and hotel bookings offered on its website.

The Dublin-based airline generates 50 per cent of its revenues in the UK, 15 per cent in the Republic, with European hubs such as Milan and Frankfurt adding up to 8 per cent.