Ryanair lost nearly a third of its market value today after shaking investor confidence in the budget airline industry with its first profit warning since it was founded 19 years ago.
The airline said annual profit could fall by as much as 10 per cent as it slashes ticket prices to fill seats on a rapidly expanding network. Fierce competition from rivals and the euro's strength were also hurting its business.
The announcement dragged shares in Europe's biggest low-cost airline down by 30 per cent and hit major rival easyJet.
"This is the first major crack we've seen in Ryanair's business model," said Mr Kevin McConnell, head of equities at Bloxham Stockbrokers in Dublin.
Ryanair has expanded aggressively, eating into the market share of full-service airlines by its discounted fare strategy.
The discount carrier said it expected yields, or average revenue per passenger carried, to fall 25-30 per cent in its fourth quarter to end-March from a year ago, hurting profits.
"We are still very pessimistic on fares and yields. Clearly they are going down much faster than we thought before," Ryanair Chief Executive Mr Michael O'Leary told reporters in London.
Ryanair shares, already weakened by the prospect of the company losing out in a European ruling on state subsidies, closed down 30 per cent at €4.72, a level not seen since the aftermath of the September 11th, 2001, hijack attacks on America.
The news comes as the European Commission prepares to release its investigation into whether the airline received illegal state subsidies at its Belgian hub of Charleroi in what could prove to be a test case for the industry.
All the signs are Brussels is likely to adopt a tough stance when it announces its decision next week and Ryanair has pledged to appeal if the ruling goes against it.