The group, which operates 86 routes under the Manx Airlines banner and as a British Airways franchise, blamed the profits warning on the economic climate, poor weather, the World Cup and a fall in the number of passengers travelling business class.
British Regional Airlines was floated for 150p a share in June, valuing the business at pounds 97m. Yesterday the shares fell 53 per cent from 108.5p to 50.5p, valuing the company at pounds 33m.
The chairman, Sir Michael Bishop, who retains a stake of just under 30 per cent in the business, said that although passenger numbers had increased in line with expectations, yields had dropped.
In the first six months of the year they were 9 per cent lower than the same period in 1997, and yields in July and August were also lower than expected.
Traffic numbers were also lower than budgeted on a number of key routes, including the Isle of Man-Heathrow service.
Sir Michael said: "In light of the general economic climate and evidence to date within the airline, the company has deemed it prudent to make allowances in its budget for a continuation of this trend for the remainder of the year."
Dresdner Kleinwort Benson, which acts as the group's broker and also handled the placing in June, cut its profit forecast for the full year from pounds 5.8m to pounds 4.8m.
Part of the problem is that, while traffic numbers have largely held up, more passengers have been taking advantage of cut-price fare offers.
In a bid to raise yields, the group raised prices on some routes by 2 per cent at the beginning of this month and is planning further price rises of 3-4 per cent later in the autumn.
It has also withdrawn from four routes in the Highlands and Islands and retired its fleet of ageing Shorts 360 aircraft.
The group reported a loss of pounds 487,000 for the six months to the end of June, compared with a pounds 511,000 profit in the same period last year. This was due to launch costs of its Inverness-Gatwick service and the introduction of new Embraer 145 regional jets.
Passenger numbers were up by 11 per cent to 1.2 million but capacity increased by 36 per cent over the period. This resulted in a fall in load factors - the percentage of seats filled - from 62.8 per cent to 60.6 per cent.