Virgin Australia Holdings Ltd., Australia’s second-largest carrier, dropped the most in 22 months in Sydney trading after forecasting that annual profit would slip for the third time in five years.

The stock fell as much as 8.7 percent to 42 Australian cents, headed for the biggest drop since July 2011, before trading at 43 cents as of 10:59 a.m. Profit before tax and one-time items in the 12 months ending June will be less than last year’s A$83 million ($82 million), the Brisbane-based company said in a statement yesterday.

Virgin is taking on Qantas Airways Ltd.’s 65 percent share of Australia’s domestic market, rolling out business class services while risking lower ticket prices by adding flights in tandem with the larger carrier. It’s also taking control of Tiger Airways Ltd.’s Australian budget airline and rural service Skywest Airlines Ltd. using cash provided by Singapore Airlines Ltd. to build half of its 20 percent stake in Virgin.

There had been a “slower than anticipated improvement in trading and economic conditions” and no further profit forecast was possible, Virgin said in its regulatory statement released after the close of the market yesterday.

The cheapest discount air fares slumped to their lowest in a year and business class tickets dropped to a three-month low in May, according to government figures released today.

Growth in Virgin’s flight capacity would be about 4 percent in the six months ending June, compared to a previous forecast of 5 percent to 7 percent, the carrier said.

Virgin hasn’t previously forecast earnings for this year. It was expected to earn A$61 million before tax during the period, based on the mean of 11 analyst estimates compiled by Bloomberg, with net income of A$43 million based on the average of nine estimates.

The airline’s 2.4 percent advance in Sydney trading this year has lagged behind the 12 percent climb for the broader S&P/ASX 200 index.

Editors: Aaron Clark, Frank Longid. To contact the reporter on this story: David Fickling in Sydney at dfickling@bloomberg.net. To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net.