Low-cost airline Ryanair is to reduce its flying schedules and cut fares this winter after seeing its profit hopes dented by growing headwinds.

The Dublin-based carrier said increased competition and Europe’s continued economic problems were having an impact on fares and the amount of money it makes per passenger.

It said it will respond to the weaker outlook by selectively reducing its winter season capacity and rolling out lower fares and “aggressive” seat promotions in markets including the UK.

The strategy will cut its annual traffic forecast by 500,000 to 81 million, while profits will be at the lower end of its previous forecast of between €570 million and €600 million.

Thursday’s warning comes a month after chief executive Michael O’Leary said July’s heatwave in northern Europe impacted on demand.

More normal booking patterns returned in August but in recent weeks the company has noticed a “perceptible dip” in forward fares and yields into September, October and November. Ryanair said this was due to a combination of factors, including increased price competition and some rival capacity increases in the UK, Scandinavian, Spanish and Irish markets. It also pointed to the continuing effect of austerity and difficult economic conditions across Europe and the impact of the weaker sterling against euro exchange rate.

The company said: “We will respond to this lower yield outlook by selectively reducing our winter season capacity, thereby cutting our full year traffic target from over 81.5 million to just under 81 million.

“We are also rolling out a range of lower fares and aggressive seat sales particularly in those markets mainly the UK, Scandinavia, Spain and Ireland.”

It said it remains confident it will continue to hit revised passenger targets, albeit at lower fares and yields than originally expected.

Ryanair’s update caused its shares to slide 14 per cent, while Luton-based rival Easyjet dropped seven per cent in the FTSE 100 Index.