European airlines flying into turbulence

Struggling European airlines will lose more than $1 billion this year.

According to the International Air Transport Association (IATA), while Asian and US carriers should make money in 2012, more airlines in Europe might follow Hungary's Malev into bankruptcy - if the financial crisis in the economically crippled continent worsens.

Due to high fuel prices, the worldwide industry as a whole will only scrape by with wafer thin profit margins.

"The industry's profitability is balancing on a knife edge," said Tony Tyler, IATA's executive director.

Global aviation should make a total profit this year of $3 billion on revenue of $631 billion — a profit margin of just 0.5 per cent margin.

However, the forecast European loss is nearly double that of IATA's original outlook from March.

IATA economist Brian Pearce said that was due to Europe's financial turmoil. In addition to Malev's failure in February, smaller carriers in Germany and Spain have shut down.

"We've already seen some European airlines going out of business this year, and there is clearly a possibility that will continue," said Pearce.

IATA represents 240 airlines that carry 84 per cent of passengers and cargo worldwide - but its forecast covers the whole industry.

Tyler added the "most immediate risk" is Europe's debt crisis - which could drag down profit if it triggers a recession.

Tyler said a 1 per cent drop in global airline revenue could turn the small forecast profit into a $3 billion loss.

IATA says fuel accounts for 33 per cent of carriers' costs - up from around 14 per cent a decade ago.

The global profit forecast represents a decline of more than 50 per cent from last year's $7.9 billion sum – and down by a similar margin from 2010's $15.8 billion profit.

IATA has also issued an appeal to governments to head off a mounting conflict over European carbon charges on airlines by negotiating a global system to regulate the industry's emissions of climate-changing gases.

China, the United States, India and Russia are amongst the countries that strongly oppose the European charges - which took effect on the first day of this year and require carriers to buypermits to emit carbon.