Virgin Australia shares dived more than 17 per cent after the airline warned that its pre-tax profit would be weaker than last year due to tough domestic conditions.
The airline has walked away from its February forecasts that it would beat the $82.5 million in underlying pre-tax profits it recorded in 2011-12. It means Virgin is on track to post a loss in the second half.
The profit warning follows Qantas dampening investor expectations two weeks ago.
Shares in Virgin fell 8¢ to 38¢ - making it the biggest loser among the ASX's top-200 companies after the profit warning late on Wednesday. The stock is tightly held, with Singapore Airlines, Air New Zealand, Etihad and Richard Branson's Virgin Group controlling more than 60 per cent.
Qantas also fell 5¢ to $1.665, its fourth consecutive day of declines.
Analysts at Bank of America Merrill Lynch said much of the profit downgrade was of Virgin's own making because it had added too much capacity to the domestic market.
Virgin put much of the blame for the weaker earnings on an overhaul of its reservations system and tough economic conditions. It does not believe it can recoup in the fourth quarter revenue lost while replacing its Navitaire system with Sabre.
The airline has forecast underlying pre-tax profits this financial year to be less than the $82.5 million pre-tax profit it recorded in January. It did not give more definitive guidance because of "the slower trading conditions and the competitive and weakening economic environment".
Analysts are hopeful of improved fortunes next financial year from reduced growth in capacity by Virgin and Qantas, and removal of a third independent player in Tiger when Virgin buys a 60 per cent stake.
However, the addition of Tiger could prove a drag on Virgin's earnings next financial year.
Macquarie Equities analysts said Virgin's profit downgrade was "not overly surprising" in the wake of similar comments from Qantas on the domestic market. "We believe Virgin will struggle to break even in the second half, although losses should be significantly less than Qantas," they said. However, reductions in capacity in the domestic market meant both airlines were "materially leveraged to an improvement in trading conditions" next financial year.