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• Leisure travel drops 3.5% over winter • Profit margins expected to dive to 0.7% • Lufthansa to launch first commercial biofuel route That back-of-the-cabin pilgrimage to Ibiza or Miami this summer will be a little less cramped than usual, according to the airline industry’s leading trade body, as economy class passengers balk at higher fares due to rising fuel costs and aviation taxes. The International Air Transport Association said leisure travel fell 3.5% worldwide between last November and March this year, with Europe suffering the most as recession-hit passengers declined to accept ticket prices driven higher by the increasing cost of oil . IATA’s chief economist, Brian Pearce, said carriers have had no choice but to hike fares because the cost of jet fuel has risen by more than 50% over the past 12 months. With no sign of a significant decline in an oil price that is staying stubbornly above $100 (£61) per barrel, airlines are fighting to stay profitable and have pushed up ticket prices in order to recoup costs, with an inevitable consequence for discretionary spenders, said Pearce. “If they have got a nice fat margin they can lower fares to stimulate demand but when fuel prices are up by 50% that’s not possible,” he said. This week IATA said the industry’s profit margins will slump from 3.2% in 2010, its best since the September 11 attacks, to just 0.7%. Even Ryanair, the best financial performer in recent years , is expected to hike fares by 12% this year. Fuel accounts for 30% of industry costs and a severe fluctuation in oil costs can be the difference between a slender profit and a steep loss at some carriers. UK carriers will have to claw back cost increases of about 8% this year, according to IATA, with the fuel increase equating to a rise of 5% in unit costs and rising air passenger duty forcing up expenditure by a further 3%. Business passengers, meanwhile, are swallowing the resulting rise in fares because buoyant corporate confidence is keeping expense accounts afloat. Business class traffic is running at an annual growth rate of up to 6%. Describing economy class sales as “a worrying trend”, Pearce said: “The high cost of travel is discouraging passengers.” However, the airline industry is set to takes its first serious step towards weaning itself off conventional fuel this year when Germany’s Lufthansa launches its first commercial biofuel route with paying passengers. The Hamburg-to-Frankfurt service will launch later this year if the carrier gets safety clearance, with 25% of its fuel set to be biofuel. The fuel is deemed green because it recoups the emissions generated when it is burned in flight by consuming carbon dioxide when the base plant material from which it is made is being grown. However, IATA’s head of environment, Paul Steele, said the industry was a long way from running all of its services on biofuel, because there is not enough biofuel being made to cover the 70bn gallons of kerosene consumed by the industry every year. “The real challenge is getting the quantities.” Airline industry Ryanair Travel & leisure Oil Global economy Economics Biofuels Energy Dan Milmo guardian.co.uk