The cost of oil is cited as a reason for anaemic global profitability for airlines.
BEIJING: Airline industry group IATA warned on Monday global profits would more than halve this year owing to surging oil prices and the eurozone crisis, with European carriers suffering losses of $1.1 billion.
Tony Tyler, head of the International Air Transport Association, also hit out at a controversial carbon tax scheme put in place by the European Union, lashing it as a polarising obstacle to real progress.
Tyler told the group's annual general meeting here that "2012 is another challenging year. We expect revenues of $631 billion but a profit of just $3.0 billion".
That compares with a profit of $7.9 billion in 2011, IATA figures show.
Tyler cited the cost of oil as a reason for anaemic global profitability and IATA said it predicted an overall average price of $110 a barrel this year, warning political risks could push this up.
Brent crude oil is currently sitting at $100 a barrel while West Texas Intermediate is about $85, although both are down more than $20 from multi-year peaks earlier this year.
But Tyler added: "The biggest and most immediate risk ... is the crisis in the eurozone. If it evolves into a banking crisis we could face a continent-wide recession, dragging the rest of the world and our profits down."
In a statement released as the AGM began Monday, IATA said it had downgraded its outlook for European airlines in 2012, projecting losses of $1.1 billion compared with its previous forecast of $600 million in losses
The estimate comes despite figures showing 5.6 per cent year on year growth in European passenger traffic in April and predictions global passenger numbers would rise to nearly 3 billion this year compared 2.8 billion in 2011.
"For European carriers, the business environment is deteriorating rapidly, resulting in sizeable losses," Tyler was quoted as saying in the statement.
But he added that the global picture was diverse, with carriers in North and Latin America expected to see improved prospects from 2011, compared with airlines in Europe, Asia-Pacific and the Middle East.
According to IATA estimates, North American carriers are likely to post profits of $1.4 billion in 2012, a slight improvement on the previous year due to strict management of airline capacity.
Carriers in the Middle East, however, are expected to see profits drop by more than half, as are those in the Asia Pacific region -- due in part to slowing Indian and Chinese economies.
Growth in China, the world's second largest economy, slowed to 8.1 per cent in the first quarter of 2012 -- its slowest pace in nearly three years.
But on Monday, Li Jiaxiang -- head of China's aviation watchdog -- detailed ambitious expansion plans for his country's aviation sector, pointing for instance to the planned construction of 70 new airports by 2015.
Li also reiterated that Chinese carriers would buy an average of more than 300 planes a year from 2011 to 2015 -- the country's current five-year economic plan.
During his speech, Tyler also blasted a controversial carbon tax that the European Union is trying to impose on all airlines -- a move that has sparked a backlash from the United States, China, Russia, India and European carriers.
Airlines flying to, from or within the European Union are required to monitor CO2 emissions for entire journeys and, if necessary, pay for exceeding their carbon allowances.
The scheme is "a polarising obstacle that is preventing real progress. Our host country, China, is at the forefront of the opposition to the European ETS (Emissions Trading Scheme). Its carriers are forbidden from participating", Tyler said.
Beijing has repeatedly said it opposes the EU plan, and has banned its airlines from complying with the scheme, with state media warning it could lead to a trade war in the sector.
But the EU has said the carbon tax will help it achieve its goal of cutting emissions by 20 per cent by 2020 and that it will not back down, despite claims the charge violates international law.