UPDATE 1-German air travel tax set at up to 26 eur-draft law

* German air travel tax to be applied from Jan. 1, 2011

* Tax set at 13 euros and 26 euros, depending on distance

* Tax to be lowered from 2012 to offset emissions trading

(Adds details, background)

FRANKFURT, July 15 (Reuters) - Airlines will have to pay up to 26 euros ($33.04) per passenger under the German government’s plan to impose an air travel tax to raise 1 billion euros a year, according to a draft law seen by Reuters on Thursday.

German Chancellor Angela Merkel last month announced the tax plan as part of 80 billion euros of budget measures, stunning the aviation industry and sparking protest from airlines and lobby groups. [ID:nLDE6570JJ] Under the plan, airlines will be taxed according to the distance their passengers travel, starting Jan. 1, 2011.

For shorter trips within the European Union and a number of other countries less then 2,500 kilometres away, the tax is set at 13 euros. For longer trips, at 26 euros.

The tax plan comes as European airlines struggle to return to profitability after the industry’s worst downturn in decades.

Airlines body International Air Transport Association last month warned that Europe’s aviation industry was recovering more slowly than expected, hit by a volcanic ash cloud that closed airspace across a large part of the continent in April, as well as by a weaker euro. [ID:nLDE6560L6]

"We see this tax as a distortion of competition," a spokesman for Air Berlin AB1.DE, Germany's second-biggest airline said.

“This is a massive additional burden for our passengers. That is not a satisfactory proposal.”

German flagship carrier Lufthansa LHAG.DE was not immediately available for comment.

When news of the tax plans emerged last month, analysts said that airlines might be able to pass on half of the tax to their passengers by raising ticket prices. Executives and industry groups estimated prices could rise by 8-16 euros per ticket. (Reporting by Angelika Gruber and Maria Sheahan)