Ryanair has reported a downturn in profits for the last quarter of 2007.

Ryanair, the European low-budget airline, has cited the weak sterling and rise in oil prices as among the reasons for its low third quarter earnings, reporting a 27% decline in profits to €35 million (around £26 million) compared with the same period last year.

The airline has described the current outlook for the coming fiscal year as poor, and has blamed the volatile markets – the fear of recession and the 40% increase in oil prices – for its most recent figures, though stated that its profit figure of €35m was a “creditable performance in very adverse conditions”.

Michael O’Leary, Chief Executive Officer of Ryanair, said: “The European airline sector is presently facing [a] cyclical downturn, with a possibility of a ‘perfect storm’ of higher oil prices, poor consumer demand, weaker sterling and higher costs at unchecked monopoly airports such as Dublin and Stansted which account for a significant proportion of Ryanair’s traffic. While it is impossible to accurately forecast full year fuel prices and yields this far in advance, there is now a significant chance that profits may decline next year.

“There can be only one competitive response to any consumer uncertainty, and that is for Ryanair to slash fares and yields, stimulate traffic, encourage price sensitive consumers, and promote new routes/base developments.”

The airline believes that it will continue to be “substantially profitable” over the coming year, even if its profits decrease in a recession.