Airline profits are heading for their second consecutive fall after a record US$16 billion last year and an estimated US$6.9 billion this year.

'It is an industry that has difficulty generating capital and difficulty in generating decent profit margins,' Tyler said.

Global airlines made a profit in only four of the past 10 years, with a profit margin of between 1.1 and 2.9 per cent.

The United States and China have aired their objections to the emissions trading scheme, urging the Europeans to take it back to the International Civil Aviation Organisation - a United Nations agency governing global airlines - and come up with another solution to cut emissions.

Tyler said the industry supported a global scheme that would not discriminate against airlines regardless of their operating bases and create a distortion in an industry already operating on thin profit margins.

With talks on a global emissions trading scheme dragging out, the EU intends to take the lead by launching its own scheme. Australia launched an emissions trading scheme for domestic flights earlier this year.

The EU's cap-and-trade scheme requires airlines to cover all carbon emissions for the entire trip in and out of Europe, even in sectors not located in a EU area. The EU says taking into account the whole trip will simplify the calculation of a flight's carbon emissions, but its formula is expected to favour carriers which operate from a base close to Europe.

Uncertainty about the outlook for the European economy had made the forecast for airline operations more difficult, said Brian Pearce, Iata chief economist.

With the job of moving people and cargo around the world, the performance of airlines is closely correlated to the world economy. Whenever world economic growth dropped below 2 per cent, the airline industry suffered losses, according to figures complied by Iata since 1970. The forecast for world growth next year is perilously close to that 'magic' rate, which means airlines will be facing tougher challenges.

In the first seven months, passenger volumes rose 6 per cent from the same period last year, despite the earthquake and nuclear crisis in Japan in March and weak economic growth in the second quarter.

Thanks to a more resilient economy in Asia-Pacific, more than a third of airline profits came from the region this year. But Asia-Pacific airlines are still subject to weakening demand and would see their profit fall to US$2.5 billion from US$8 billion last year, Iata said.

Weaker demand for air cargo will especially hurt Asian carriers as they usually have a bigger portion of sales from cargo.

Iata forecasts an air freight recovery next year.