Fuel prices put pressure on airline profits Rising fuel prices are expected to drag airline profit margins down to razor thin levels this year, the industry's global trade body has warned as it cut its forecast for the sector's annual profits by $500m. While growth in demand for air travel is expected to exceed capacity gains in all regions except Europe, the higher yields that result will only go some way to offsetting oil prices that have risen sharply since the organisation's previous quarterly forecast. The International Air Transport Association said that higher fuel prices meant it had reduced its 2012 net earnings forecast for the industry from the $3.5bn it predicted in December to $3bn, on a 0.5 per cent margin. Iata had already lowered its forecast from $4.9bn in September on fears that European sovereign debt woes could spur a recession - an outcome that "appears to have been averted for a while," it said on Tuesday. But Tony Tyler, Iata's director-general, said European airlines should still be braced for record losses of $600m, and pointed to the collapse of two carriers - Barcelona-based Spanair and Hungary's Malev - so far this year as evidence of the danger of high fuel prices. Fuel will account for more than a third of costs at carriers globally, Iata predicted, up from 30 per cent in 2011. It said that if geopolitical events later this year pushed oil prices significantly above its $115 per barrel forecast, the industry could produce losses in excess of $5bn. However, Iata forecasters took a more positive view than in December of the prospects for air cargo, which is a leading indicator for the wider economy. Mr Tyler said freight loads, at 6 percentage points below their peak performance in 2010, "appear to have stabilised, albeit at low levels." Given that the global economic growth is not much higher than 2 per cent - the threshold at which airlines historically move into the red - Mr Tyler said now was "the perfect time" for governments to reconsider regulations such as the controversial carbon tax being imposed by the European Union on the industry for the first time this year. More than two dozen non-European airlines have protested against their inclusion in the bloc's emissions trading scheme, arguing for a global solution instead. The International Civil Aviation Organisation is due to discuss a global scheme next year, and Mr Tyler urged the EU to offer "some proof" of its commitment to that process, in the form of concessions to non-European carriers" requests.