EasyJet shares have tumbled on the back of a trading statement that warned of a unprofitable price war continuing between low cost carriers.

Shares in the no-frills airline had dipped 16% by 10.20am to 168.5 pence on Monday. In a statement EasyJet said: "We indicated in our interim announcement that we were seeing unprofitable and unrealistic pricing by airlines across all sectors of the European industry. We expect this to continue during the rest of the year."

The airline said it would continue to defend its market share backed by a strong financial position, and that it planned to expand capacity by 20% in the coming year.

Chief executive Ray Webster said: "At our interim results we indicated the increasingly competitive nature of the European airline market for this year. This continues and, as Europe's number one low-cost airline, we will use our market and financial strength to protect our leading position.

"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."

Fuel prices remain a concern according to the airline. It has hedged much of its oil requirements well below the current price for oil and says that if prices continue to rise at current rate, it will wipe £4 million off profits.

Easyjet hopes to cut costs with initiatives like kiosk check-in, so the cost of ground operations don’t grow at the same rate as the airline. It said a pre-tax profit of £52 million would be achieved this year, but only if there was an easing in oil prices, the sterling remains strong against the dollar, and a stable geopolitical environment is maintained.

Last week rivals Ryanair made a similar statement predicting collapses in the no-frills market when it released disappointing results.