Shares in Qantas, the biggest Australian airline, slumped as much as 11% today as it slashed its profit forecast by more than half and said it would axe capacity and jobs.

The airline is now predicting pre-tax profits of between A$100 million (£49 million) and A$200million in the year to June down from the around A$500 million it forecast in November.

"Market conditions have deteriorated, especially in our international business," said chief executive Alan Joyce. "We have no choice but to lower our profit forecast and make major changes to ensure Qantas can weather the current commercial environment."

All major international airlines have been under increasing pressure for months as business travel dries up and holidaymakers make fewer trips. But Qantas said there had been a "rapid and significant deterioration" in trading conditions in the past few weeks.

Joyce said that some 500 management positions would be cut quickly and that up to another 1250 jobs were at risk.

Capacity will be cut by 5% with the equivalent of 10 aircraft being grounded.