Global airline industry body International Air Transport Association (Iata) has cut its profit forecast for the sector to $3.5 billion in 2012 as fuel prices continue to remain high and business sentiments fall on the looming euro zone sovereign debt crisis.

The Geneva-based airline association had in September pegged the after-tax cash profit for international carriers at $4.9 billion. ?If we are faced with a banking crisis that leads to a European recession in 2012 deep losses are certain. And there is no doubt that even the best case scenario sees a tougher year ahead,? Iata director-general and CEO Tony Tyler said.

Against the combined profit of $3.5 billion estimated for international carriers next calendar year Indian carriers are expected to post a net loss of $2.5-3 billion in the financial year ending March 31. The Iata CEO urged the Indian government to allow domestic carriers exercise commercial freedom while fixing airfares and eliminate tax on aviation turbine fuel.

?The government needs to ensure commercial freedom to the airlines. The industry should not be micro-managed. The government should eliminate taxes on jetfuel and concentrate on infrastructure development,? said Tyler who earlier ran Hong Kong?s Cathay Pacific Airlines.

Increasing jet fuel price which accounts for nearly 40% of the airline?s total operating cost is likely to keep the air-carriers? margin under strain. As per industry estimate, the global oil prices are expected to not fall below $100 a barrel leaving little scope for airlines to improve their operating profit.

?Relatively high jetfuel costs and a weakening economy add up to a squeeze on airline profitability,? said Iata chief economist Brian Pearce, adding in spite of high air traffic growth in India making profit would be major challenge for carriers.

While India?s air traffic growth has registered double-digit growth it has not translated into profit for the carriers. The three listed carriers Jet Airways, Kingfisher Airlines and SpiceJet have posted a combined loss of about $290 million (R1,500 crore) in the quarter ending September in spite of increase in passenger revenue.

Meanwhile, Iata has decided to develop standards for a global distribution alternative that would allow airlines to make full range of products available to passengers. Once the new distribution system is in place passengers would get to know whether a business class seat is a fully flat bed or a traditional recliner.

(Travel for this story was sponsored by Iata)