Budget airline Ryanair has reported a spectacular jump in profits, far exceeding analysts' expectations.

The company said on Tuesday that profits for the three months to late June came in at 39m euros ($38.4m; �24.2m) after tax, 68% up on the same period last year.

Michael O'Leary: Warned of higher costs

But Ryanair warned that higher costs during the April to June period last year, when the company launched a number of new routes, had flattered the year-on-year comparison.

"We will not repeat a 68% growth in net profits in (the next three months)," Ryanair chief executive Michael O'Leary said in a statement.

Ryanair stock closed 5p higher at 387.5p on Tuesday.

Cost-conscious

The no-frills airline's performance during the latest three month period was buoyed by a 38% increase in passenger numbers, with total sales up 29% on the year at 194.3m euros.

Ryanair said it had placed firm orders for three new Boeing aircraft to help it cope with continued growth.

The sustained increase in passenger numbers reflects the growing popularity of European budget carriers, which have wrested a large share of the short-haul market away from more expensive full service airlines.

Ryanair has expanded rapidly during the last two years, establishing bases at Stansted in the UK, Charleroi in Belgium, and Hahn near Frankfurt.

The airline also plans to expand its home base at Dublin airport, where the Irish government recently approved plans for a second terminal.

New force

Ryanair is a leading force in a new generation of European budget airlines modelled on South West Airlines in the US.

Ryanair's business model continues to work

Dresdner Kleinwort Wasserstein

Ryanair and rivals such as Easyjet, Go, and Buzz offer cheaper fares than their full-service rivals by cutting down on costs, encouraging passenger to book online, and asking them to pay extra for in-flight meals.

This approach has enabled the budget carriers to prosper despite a sharp downturn in the air travel sector since the 11 September attacks last year.

Analysts say budget carriers are currently enjoying an early spurt of growth, but predict that the increase in passenger numbers will taper off in the next two years.

City reaction

The no-frills sector is already showing some signs of consolidation, with Easyjet buying out former BA subsidiary Go in a �400m deal earlier this year.

The Easyjet-Go merger, which looks set to displace Ryanair as Europe's biggest no-frills airline, is likely to put the Irish carrier under added competitive pressure.

But Tuesday's results were welcomed in the City, with analysts at investment bank Dresdner Kleinwort Wasserstein repeating their "add" recommendation on Ryanair shares.

"Ryanair's business model continues to work," the bank said in a research note.

"We see little impact from Easyjet's acquisition of Go on the company's growth prospects in the medium term.

"We believe the European market is sufficiently large for both companies to continue to grow side by side."

Ryanair's public image was tarnished earlier this year when a court ordered it to pay damages for failing to honour a competition prize it had awarded to its one-millionth passenger.

It has also faced allegations that its pilots are forced to work under such pressure that safety could be compromised.