European airlines’ losses put at $1.1bn

Global airlines are flying into increasing turbulence this year, with losses at European carriers set to be nearly twice as big as previously expected and China’s economic slowdown adding to the headwinds, according to the main industry body.

The International Air Transport Association forecast that European airlines will report a combined net loss of $1.1bn this year, up from its previous estimate of a $600m loss, as the eurozone crisis takes a deepening toll on carriers.

On a worldwide basis, airlines are looking at a razor-thin profit margin of 0.5 per cent this year, said Iata. If Europe’s banking crisis intensifies and global airline revenue drops 1 per cent, the forecast industry-wide net profit of $3bn could easily flip to a loss of the same size, said Tony Tyler, Iata’s director-general.

“The industry’s profitability is balancing on a knife edge,” he warned on Monday.

With executives from the world’s top airlines and aircraft manufacturers gathered in Beijing for Iata’s annual meeting, there was much optimism in the corridors that China could prop up the industry. But frank comments from the head of Air China, the country’s flagship carrier, threw that view into doubt.

“The operating situation for Chinese airlines could be even worse than during the 2008 [global] financial crisis,” said Wang Changshun, Air China chairman.

He said Chinese airlines would stick to their plan of buying 150-200 aircraft a year up to the end of 2015, making the country far and away the biggest source of new demand in the world.

But he added that Europe’s debt troubles, the sluggish US economy and slower growth in Asia were a triple threat to Chinese airlines, despite a sustained boom in domestic air travel.

Iata said Asian carriers would generate a combined net profit of $2bn this year, $300m less than previously thought, following a weak first quarter.

Adding to the uncertainty for global airlines is the dispute over the European Union’s scheme to charge airlines for their carbon emissions. China, Russia, the US and other countries have been vehement in their criticism of the EU for what they describe as unilateral imposition of the carbon charges.

“We are not opposing [regulation of carbon emissions], but we are opposing that they [the EU] try to force other continents under their legislation,” said Peter Hartman, Iata chairman and president of KLM, the Dutch carrier.

Manufacturers were still relatively upbeat, with Airbus saying it was on track to hit its 2012 target of about 650 new aircraft orders.

“It’s definitely a slower economy than it was last year, but we’re not seeing people calling up and asking to cancel or reschedule [orders],” said John Leahy, Airbus’ chief operating officer for customers.

Europe has seen some airlines collapse this year, including Hungary’s Malev and Spain’s Spanair. Leading European flag carriers are braced for a sharp fall in profitability, with International Airlines Group, parent of British Airways and Iberia, expecting to only break even.