Budget airline Ryanair has announced a first quarter profits fall of 85% after a near doubling of its fuel bill.
And the Dublin-based carrier warned it could make a full-year loss of up to £47.3m if oil prices remained high and fares fell by 5%.
Ryanair is planning to increase its presence at Birmingham International Airport over the next three years with a major expansion.
The gloomy update shook the airline industry, with shares in British Airways down by 5% and low-cost airline EasyJet 10%.
Collins Stewart analyst Andrew Fitchie said today's figures were well below expectations and showed Ryanair was "directly in the path of the current economic storm".
Ryanair chief executive Michael O'Leary said the company's fuel bill rose 93% to £289.6m in the three months to June 30, representing almost 50% of its operating costs, compared with 36% last year.
Profits after tax and excluding certain exceptional items fell to £16.6m, down 85% on a year earlier.
Despite the oil price pressure, Mr O'Leary said the airline remained committed to its guarantee of no fuel surcharges. He added: "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."
Oil prices hit 147 US dollars a barrel this month, but Ryanair recently took advantage of a fall in the price to fix 90% of its fuel requirement at 129 US dollars a barrel for September and 80% of the October to December period at 124 dollars. However, it is unhedged for the fourth quarter to the end of March.
Ryanair said its forecast of a possible loss for the full year was based on fourth-quarter oil prices of 130 US dollars and a 5% decline in average fares.
It said it would look to maintain "aggressive pricing" in order to maintain high plane usage.
Mr O'Leary added: "We now believe that our average fares for the year may fall by as much as 5% if European airfares plunge this winter.
"Ryanair will lead this downward pricing at a time when most of our competitors are hoping to raise fares and fuel surcharges."
The airline said this month that it planned to cut its number of weekly flights from more than 1,850 to just under 1,600 this winter. That includes a 14% reduction in the number of weekly flights at Stansted Airport in Essex.
Mr Fitchie said Ryanair's full-year forecast came in well below stock market forecasts for a figure around £96.3m.
He added: "Ryanair is directly in the path of the current economic storm. Its demand is made up of leisure traffic, much of which is highly discretionary short break holidays - the leisure segment most vulnerable to economic squeeze.
"Whilst having been consistently the lowest cost producer in the sector, lack of fuel hedging has left it exposed, and with substantial committed capital expenditure over the next two years, its returns are collapsing."