AIR FRANCE-KLM warned yesterday that its operating profit could fall by one-third this year under the impact of the surge in fuel prices.

Jean-Cyril Spinetta, chairman and chief executive of the world's largest airline by turnover, said that air fares would have to rise as airlines were forced to pass on to customers part of the higher fuel costs.

He admitted the increases could hit demand for air travel.

The Air France-KLM share price suffered its biggest daily fall since September 2002, closing €1.91, or 10 per cent lower, at €16.74.

The profit warning came as airlines around the world reveal the depth of the growing crisis in global aviation caused by the recent surge in the crude oil price to record levels.

On Wednesday, American Airlines announced plans to ground scores of its older aircraft, eliminating flights, cutting thousands of jobs and reducing domestic capacity by 11-12 per cent in the coming winter.

British Airways, which last week announced record profits for last year, warned an oil price of $125 a barrel could virtually wipe out its operating profits, and said it also expected to ground some aircraft in the winter.

Willie Walsh, BA chief executive, told reporters in the US yesterday: "Consolidation has to happen in the US. You can't run an industry that is chronically unprofitable and expect it to last long-term.

"We're going to see casualties," continued Mr Walsh. "We're going to see people fail. Prices are going to go up. The industry cannot survive unless it adjusts to these higher oil prices."

Air France-KLM and some other leading carriers, such as Germany's Lufthansa, are being protected from the worst of the fuel price increase by the weakness of the US dollar and extensive hedging of their fuel requirements. - ( Financial Times service)