Airline margins remain “pathetic” with profits for European carriers predicted to slump by 40% in 2011, IATA warns.

Industry-wide profits will drop to $9.1 billion from $15.1 billion this year, with net margins falling from 2.7% to 1.5% in 2011.

European carriers will be the “industry laggard” among the major regions with a $400 million profit in 2010 shrinking to $100 million in 2011, according to IATA.

“Intra-European market conditions remain depressed as a result of the debt-crisis, slow economic growth, government austerity measures and increasing taxation,” the organisation said.

“Profitability is further weakened by below trend demand growth of 3.5% alongside a 4.4% increase in capacity in 2011.”

IATA director general and CEO Giovanni Bisignani said industry recovery will dip next year after a strong post-recession rebound.

A two-speed nature of recovery is unchanged with European airlines continuing to underperform other regions.

“Margins remain pathetic. With a 2.7% net margin in 2010 shrinking to 1.5% in 2011, we are nowhere near covering our cost of capital,” said Bisignani.
“The industry is fragile and balancing on a knife edge. Any shock could stunt the recovery, as we are seeing with the results of new or increased taxation on airlines and travellers in Europe.”