Southampton airport’s largest carrier today warned jobs may be at risk as it slashes costs after the most challenging conditions in its 10-year history sent it into the red.

Flybe outlined plans to make annual savings equivalent to £2 per seat as it said there was ''little sign of recovery'' in the UK domestic market.

It warned there may be some impact on its workforce - consisting of 3,000 staff in the UK, including 200 in Southampton, and up to 700 in Europe - as part of a group-wide review of costs, but will give further details in the new year.

Exeter-based carrier reported pre-tax losses of £1.3 million in the six months to September 30 against profits of £14.3 million a year earlier after being hit by sky-high fuel costs and falling numbers of fliers.

The group, which also flies from Bristol, Cardiff, Doncaster, Edinburgh and East Midlands, saw UK passenger numbers fall 3.6 per cent to 4 million in the half-year.

Its fuel costs leapt 22.7 per cent to £68.6 million, or from £8.73 to £11.06 per seat, and it said demand was being stifled by air passenger duty hikes.

The group said: ''Flybe is currently operating in possibly the most challenging conditions since its creation as a new-generation regional airline 10 years ago.

''The UK domestic aviation market has seen passenger numbers reduce by 20.6 per cent since 2007, UK air passenger duty increased by 160 per cent over the same period and fuel prices are at record annual highs.''

Jim French CBE, Flybe’s chairman and chief executive officer, said “The continuing challenges of the UK domestic aviation market further validate the importance of our decision to focus Flybe’s long-term strategy on rebalancing our route network by growing our European operations.”

He added: “While we recognise the current challenges being faced across the Group, we are addressing those challenges and believe that our long term strategy is one which will continue to rebalance our Group activities. We remain confident in Flybe’s future prospects.”

Group revenue remained similar to the first half of last year at £341m.