Ryanair profits took an 85 per cent nosedive as fuel costs almost doubled over the last quarter, the airline said.
An early Easter and soaring oil prices led to Ryanair reporting a first quarter profit of 21 million, down 118 million from last year.
The airline warned of a tough year for the airline industry, with more companies collapsing or consolidating through the winter, and warned its own losses could reach 60 million.
Ryanair's CEO Michael O'Leary said: "Trading conditions have been difficult in Q1 as we suffered the loss of Easter and the impact of higher fuel prices.
"Oil prices almost doubled in Q1 from $61 to $117 (per barrel) as our fuel bill rose 93 per cent to 367 million. Fuel now represents almost 50 per cent of our total operating costs compared to 36 per cent last year."
Although the number of passengers flying with the Ireland-based airline rose by 19 per cent over the last three months, yield fell by eight per cent as fewer passengers checked in their luggage and Ryanair invested in new routes.
Despite the higher fuel costs, the airline affirmed its pledge to never introduce fuel surcharges.
"We will continue to absorb higher oil costs, even if it means short-term losses, while we continue to deliver Europe's guaranteed lowest fares to our 58 million passengers," said Mr O'Leary.
The company dismissed British Airway's predictions that higher oil prices signals the end of budget air travel, claiming consumers are more price-sensitive now and will switch away from higher-priced competitors.
Ryanair forecasts a wave of consolidation in the airline industry this winter but said the tough conditions would provide "enormous opportunities for strong, well financed airlines, such as Ryanair to grow".
This year, Ryanair said it expects to make a loss of between 60 million and breakeven, as falling consumer confidence will lead to fewer customers. The airline said it will respond by aggressive price cutting and expects to lower fares by five per cent over the winter.
Once oil prices fall to a sustainable level, Ryanair said, the airline will be in a position to rebound strongly.
Earlier this month Ryanair cut 250 flights from Stansted for its winter schedule and announced the closure of seven European bases, following the announcement if oil rose over $130 a barrel the firm would start to make a loss.