The Irish airline has reduced its profit forecast for the financial year ending in March to around €510m from €570m. 

Shares fell by over 11% this morning, while sector peers easyJet and IAG were also out of favour in early trading.

In a trading update for the first half of this year, Ryanair said passenger numbers were stable and onboard spending has been growing but average airfares have declined by 2%.

It reported that fares had been affected by one-off events such as the timing of Easter, the summer heatwave in northern Europe, French air traffic control strikes in June, and weaker sterling.

Ryanair said it would address falling airfares and tough market conditions by stimulating traffic growth with more aggressive fare promotions.

“This will lay the foundation for traffic growth over the coming years, particularly as our new 175 aircraft deliver from September 2014,” it said.

While airfares have been falling, the firm has reported a 1% rise in first half profits to €602m, as traffic grew 2% to 49 million passengers.

Revenue per passenger increased 2%, boosted by a 22% rise in ancillary revenues.

Ancillary revenues from the extra services the airline offers jumped 22% to €713m, driven by the successful roll out of reserved seating, priority boarding and higher credit and debit card fees.

However, due to the 7% increase in fuel prices, unit costs rose 3%.

Given the weak conditions in key markets and increased competition, Ryanair has also announced that it is looking to focus on improving its service in an attempt to retain customers and attract new ones.

It has announced a plan to introduce allocated seating from 1 February 2014, which will allow passengers to select seats on aircraft as long as they check in more than 24 hours before departure.

The airline said the move will make “the boarding process smoother” and enable “families or other groups to ensure that they sit together”.

It added that the return to allocated seating was in response to enormous demand and was “part of the airline’s commitment to listen to its customers”.

In recent weeks, the airline has also introduced measures such as allowing a small second carry-on bag and a 24 hour “grace period” to allow passengers to correct minor booking errors.