Global airline chiefs gather in Beijing today as the industry is buffeted by reduced demand and fallout from near record fuel prices.

In the notoriously volatile airline business, financial results of 55 airlines in April and May indicate the industry has made a net loss of US$1.5 billion ($1.9 billion) in the first quarter of the year.

News of the bailout for Spain may further spook the industry where strong growth in the host country is also under threat, prompting a cut in central bank interest rates and fuel prices in the past two days.

The International Air Transport Association's annual meeting will cover air safety and long running issues, including biofuel development, and the battle against the European Union's emission charging regime.


The two-day gathering comes days after Qantas forecast a 90 per cent plunge in profit and signs of weakening demand for long-haul travel.

Even though fuel prices have fallen during the past month, airlines are being hit because of economic turmoil in Europe threatening to spread.

IATA has warned of continued uncertainty. "We are already seeing an impact in terms of declining demand for goods made in Asia," said Tony Tyler, the association's director-general in Beijing.

It downgraded its forecast for airline profits for the year to US$3 billion, a margin of just 0.5 per cent, and warned a further economic downturn could see a net loss for the sector.

Air New Zealand has warned its second-half result may not match last year after reporting a 71 per cent drop in its first six months.

It said in February it would cut its workforce by 441, 175 through lay-offs and the rest through attrition.

Big airlines flying to New Zealand in the past year have reported large profits - but not as big as the previous 12 months.

Last month Emirates reported its profit had tumbled 72 per cent to US$409 million, Singapore Airlines was down 69 per cent to US$268 million and in March, Cathay Pacific reported it was down 61 per cent to US$700 million.

IATA's latest bulletin said US airlines were managing to recover fuel costs with higher yields, but softer worldwide fares suggest weakness in other regions.

IATA's members carry about 80 per cent of air traffic and more than 600 delegates will meet in the China World Hotel. Outgoing Air New Zealand chief executive Rob Fyfe, who is an IATA board member, will sit on one of the discussion panels.

Tyler said China was in the front line of state opposition to "Europe's misguided plans to include international aviation in the ETS. I fully understand why China views this as an attack on its sovereignty. Nobody wants a trade war".

While the hosts are in line with IATA thinking on the EU emissions trading scheme, the association has raised concerns about airport infrastructure investment keeping pace with China's booming airline industry. In 2001, there were just 32.5 million seats a year on international flights operating to and from China, compared with 92.4 million last year.

Grant Bradley travelled to Beijing courtesy of China Southern Airlines and IATA.