Airline profit fears as trade fight looms with Europe

SINGAPORE Sun Jun 5, 2011 2:16pm EDT

A Qantas passenger plane takes off from Sydney airport May 31, 2011. REUTERS/Tim Wimborne

A Qantas passenger plane takes off from Sydney airport May 31, 2011.

Credit: Reuters/Tim Wimborne

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SINGAPORE (Reuters) - Global airlines will spell out the cost of a whirlwind of disasters, political unrest and high oil prices on Monday while mounting an all-out offensive against European plans to make them pay extra for carbon emissions.

The International Air Transport Association, whose airlines carry more than 90 percent of global air traffic, may be forced to cut its benchmark forecast for 2011 industry profits at a major annual gathering in Singapore.

It is the latest sign of concern that the economic rebound that pulled many companies out of financial trouble in 2010 may be screeching to a halt. Such fears reflect Japan's earthquake, recent instability in the Arab world and a rise in oil prices.

IATA most recently predicted an industry-wide profit of $8.6 billion in 2011 after a $16 billion surplus in 2010 -- a year in which the economy had seemed to be recovering quickly.

Although drastic cost cuts and a tight lid on capacity appear to have prevented the industry from plunging back into the red, most analysts say the current forecasts are too optimistic.

The industry's outlook is often seen as a guide to the strength of cyclical performance in developed markets and growth in emerging economies, which rely heavily on air transport.

Airline chiefs arrived at the conference sounding off against European Union plans to curb emissions from aviation, which they say would threaten their recovery and discriminate against carriers located the farthest away from Europe.

The EU plans will require all airlines flying to Europe to be included in an Emissions Trading Scheme (ETS) from January 1.

The system forces polluters to buy permits for each metric ton of carbon dioxide they emit above a certain cap.

The plan is meant to tackle growing emissions from the $500 billion aviation industry, which is responsible for about 2 percent of mankind's greenhouse gas pollution.

Airlines say it will only increase costs and add to pressures caused by a faltering global economy.

WARNING OF TRADE CONFLICT

Governments and airlines have been piling on pressure, some describing the forced inclusion of global airlines as illegal.

"The last thing that we want to see is a trade war," said Giovanni Bisignani, director-general of the International Air Transport Association. The EU had to heed a "growing chorus of countries strongly opposing an illegal extraterritorial scheme."

European airlines and Airbus have written to the European Commission warning of a "trade conflict with the world's most powerful economic and political players," over the plans that are opposed by the United States and China.

The letter, signed by Airbus Chief Executive Tom Enders and Virgin Atlantic Chief Executive Steve Ridgway on behalf of European airlines, says the measures are perceived as a tax.

U.S. airlines are challenging the move in EU courts.

Industry and diplomatic sources say China has threatened retaliation against European airlines and planemaker Airbus if the EU goes ahead with its plans.

But Europe's climate chief insisted on Sunday the EU would stand firm against any threats of retaliation.

"When some parties start to threaten specific European companies, I think Europe should be very firm," Climate Commissioner Connie Hedegaard told Reuters in Brussels.

The EU has offered to exempt airlines of countries that can prove they are taking equivalent steps to cut emissions.

Airlines are meanwhile involved in a growing number of bilateral trade disputes over access rights as Gulf airlines seek markets for planes such as Airbus A380s that they have ordered.

(Additional reporting by Alison Leung, Harry Suhartono, Pete Harrison; Editing by Maureen Bavdek)

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