British budget airline easyJet sparked a sell-off in European airline shares on Wednesday when it warned record fuel costs would erode its full-year profit if they didn't fall soon.

EasyJet shares fell 12 percent to GBP3.30 pounds by 1052 GMT, as brokerage Panmure and investment bank UBS downgraded their ratings on the stock.

Budget rival Ryanair fell 6.9 percent, while British Airways was 4.8 percent lower, Air France-KLM was down 1.1 percent and Lufthansa down 1.3 percent.

"It is pretty obvious that if the recent significant rise in the fuel price is maintained then our second-half profits will be lower than we had previously expected," said easyJet Chief Executive Andy Harrison.

The airline said the forward price for jet fuel this summer was over USD$1,000 per tonne, and at that level its fuel costs would rise by GBP45 million (USD$90.6 million) in the second half despite 40 percent of its fuel needs being hedged at USD$750 per tonne.

Oil is currently trading at USD$109 a barrel, after hitting a record high of around USD$112 on Monday.

Forward markets for European jet fuel, used by airlines to hedge their fuel costs, show that market players currently expect outright prices to remain above USD$1000 per tonne until at least the first quarter of 2009.

"It is unlikely that such a large and immediate fuel increase could be mitigated in the short term by revenue improvements and cost actions, therefore pretax profits for the full year would be below previous guidance," the airline said.

EasyJet said trading looked good for Easter and it had already sold 27 percent of its summer seats, a better position than at this time last year.

"Performance on the top line is encouraging against the current consumer environment," analysts at Numis Securities said. "However if consumer discretionary spend tightens then we see further downside to these forecasts," they added.

Europe is in a tug of war for jet fuel, road diesel and heating oil -- all members of the same family of middle distillate fuels -- with other global consumers, especially the booming markets of Asia.

Prices for these fuels could fall, however, if their benchmark, ICE London gas oil futures, see a seasonal decline with the end of the heating season in the northern hemisphere.

UBS analyst Tim Marshall downgraded his easyJet forecast for this year by 25 percent, next year by 41 percent and the following year by 40 percent.

"Less financially strong airlines will suffer more," he said of the shares. "But in the short term, we suspect performance will track oil."

EasyJet said that its relatively new fleet of aircraft, which consume less fuel than older fleets, and its low-cost business model would help it compete.

"Of course the price of fuel will hit all airlines and we remain convinced... that we shall emerge as winners in a high- oil price environment," it said.