British Airways owner International Airlines Group (IAG) fell three per cent while easyJet was down by four per cent after the downgrade by their rival highlighted falling fares on European and American routes.
The wider London market was also under pressure after the World Bank cut its forecast for global economic growth to 2.8 per cent from 3.2 per cent, sending the FTSE 100 Index 34.7 points lower to 6838.9.
Germany's Dax and France's Cac 40 dropped too while New York's Dow Jones Industrial Average was also in the red at the time of the close in London.
On currency markets, the pound rose against the US dollar and the euro after the unemployment rate fell to a five-year low of 6.6 per cent as official figures showed jobs increased at the fastest rate since records began in 1971.
Sterling was at 1.68 US dollars and 1.24 euros.
Airline stocks were hit after Lufthansa's operating profit forecast was lowered by as much as a third to one billion euros (£806 million) for this year and by 24 per cent to two billion euros (£1.6 billion) in 2015.
IAG, which owns Spain's Iberia as well as BA, fell 12.6p to 400p while low-cost airline easyJet also lost altitude, off 63p at 1530p. Dublin-based operator Ryanair was down two per cent.
In a grim session for the airline sector, Rolls-Royce topped the fallers board after Emirates scrapped plans to buy 70 Airbus A350 planes.
Shares fell more than five per cent, or 59p, to 1017p after Rolls said this would reduce its order book by 3.5 per cent or £2.6 billion, although it remains hopeful that the delivery slots will be taken by other airlines.
The loss of the Emirates order comes in a year when Rolls-Royce expects revenues and profits will fail to grow due to the impact of defence spending cuts among major customers.
On the risers' board, supermarket chain Sainsbury's climbed one per cent despite reporting a 1.1 per cent fall in like-for-like sales in the 12 weeks to June 7.
This was the second quarterly decline in a row but shares rose 3.2p to 333p on relief that the figure was in line with City expectations.
Tesco edged 0.4p lower to 295p, while Morrisons was 1p higher at 195.5p. Former takeover target AstraZeneca was ahead after announcing it would present a string of data on its drugs at a major US diabetes conference.
The biggest FTSE risers were Randgold Resources, up 75p to 4482p, Coca-Cola HBC up 17p to 1406p, AstraZeneca up 52p to 4400p and Sainsbury's up 3.2p to 333p.
The biggest fallers were Rolls-Royce down 59p to 1017p, Vodafone down 9.4p to 199.4p, easyJet down 63p to 1530p and International Airlines Group down 12.6p to 400p.