Virgin Blue shares dropped nearly 22 per cent on Monday after Australia’s second-largest airline warned full-year profits would nearly halve and the group’s largest shareholder abandoned an attempt to sell down its stake.

Goldman Sachs JB Were was appointed in February to undertake a strategic review after Virgin Blue received a number of expressions of interest. Toll Holdings, the Australian logistics group which owns 62.8 per cent of Virgin Blue, has been attempting to cut its holding. However, Toll said that what interest it had received failed to “accurately reflect the underlying value” of the business.

It is the second time Toll has failed to reduce its stake in Virgin Blue, which it inherited after buying Australian rival Patrick Corp for more than A$6bn in 2006.

The latest failure was blamed on volatile financial markets, although analysts also noted that Virgin Blue was suffering from competition from bigger rival Qantas and higher fuel costs.

Paul Little, Toll managing director, said the group’s strategy was to reduce its Virgin Blue stake. “The timing and value for our shareholders is paramount and disposal in the current markets would not be in the interests of Toll shareholders,” he said.

Toll said it would keep its Virgin Blue stake until it could get a better price.

Virgin Blue late on Friday warned that full-year net profit would be lower than A$140m, compared to the A$216m recorded in the last financial year.

Brett Godfrey, Virgin Blue chief executive, said the sharp rises in fuel costs was a major concern, adding that fuel comprised more than 32 per cent of operating expenses.

“In recent weeks, jet fuel prices have again escalated to record levels with the current spot price in excess of US$135 per barrel,” Mr Godfrey said. “Should prices remain at these levels, Virgin Blue will incur additional fuel costs next year of over A$120m.”

Shares in Virgin Blue, whose other main shareholder is Sir Richard Branson, the UK entrepreneur, closed down 21.6 per cent at 87 Australian cents on Monday. Toll fell 15.1 per cent to A$8.05 after it said that lower profits at Virgin Blue would hit its results.

”The reduction in Virgin Blue forecast earnings will have a direct impact on the Toll group reported earnings as a result of Toll consolidating its 62.8 per cent interest,” the group said.

Mr Little said the outlook for Toll’s core transport and logistics operations remained strong.