Shares in low-cost airline Easyjet have plunged by 15% after the carrier said high fuel prices could cut its profits this year by about �4m ($7m). Easyjet said the European air market continued to be extremely competitive and fuel prices remained "a concern".
But it added it would "vigorously" defend its market share and that it had the financial strength to do so.
Easyjet is facing competition from low-cost rivals and from traditional carriers who are cutting their fares.
The airline's share price dropped by more than 20% in early trade before recovering slightly to stand 16% down at 168.75p by 1349 GMT.
Shared pain
Shares in Easyjet had tumbled last month after it warned of a tough outlook for the year ahead and its shares have now more than halved since hitting 380p in January this year.
Higher fuel prices have hit all airlines, and at the weekend the head of the International Air Travel Association said the increased costs could frustrate hopes that the industry would return to profit this year.
Many airlines have added fuel surcharges to their fares to cover the higher costs, although Easyjet says it will not follow suit. The latest warning on profits came as the carrier said passenger numbers hit 2.1 million in May, up 19% on last year.
But its load factor - the percentage of seats filled on its planes - fell to 81% from 83%.
Easyjet said that, despite the current fuel problems, it should report pre-tax profits that would "at least exceed" the �52m it made last year.
Shake-out
The European budget airline sector is seeing fierce price competition between rivals and some analysts believe some of the smaller operators may struggle to survive.
Easyjet's chief executive Ray Webster said last month pricing by many airlines was "unprofitable and unrealistic".
 |  This is an absolutely fantastic time to travel - fares could be as much as 10% lower this summer than they were last summer  |
Announcing the latest traffic figures, he said this painful pricing environment was continuing but that Easyjet would reap the benefits in the long run. "While this may have a bearing on the growth in our profits this year, it will ensure sound medium and long-term growth for Easyjet, in a market place where there will be fewer carriers."
Michael O'Leary, the chief executive of Easyjet's main rival Ryanair, has forecast a "bloodbath" in the sector.
The picture has also been complicated by traditional airlines, such as British Airways, which have started to cut fares on some European routes to compete with the budget carriers.
Cheaper and cheaper
But while the cut-throat competition is hurting the airlines, passengers are seeing the benefits.
"This is an absolutely fantastic time to travel. Fares could be as much as 10% lower this summer than they were last summer," Easyjet's Toby Nicol told BBC Radio Five Live. "There's a great number of airlines out there and all of us are having to discount fares in order to maintain bums on seats."
Mr Nicol also predicted that efforts by the traditional airlines to steal custom from low-cost carriers would not last because their cost base was too high.
"In the long-term, the traditional airlines will probably exit the European short-haul point-to-point market and concentrate more on their long-haul operations," he said.
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