SINGAPORE/HONG KONG- - Asian airlines are facing a massive hit to earnings as soaring fuel costs and dwindling demand for travel create turbulence that has already bankrupted some small carriers.

The International Air Transport Association issued a gloomy outlook in June, forecasting a $6.1 billion loss for the industry worldwide in 2008 -- a sharp turnaround from the $4.5 billion profit it expected in April -- blaming sky-high fuel prices.

Cathay Pacific, Asia's third-most valuable carrier, issued a profit warning earlier this month, while Australian flag carrier Qantas plans to fire 1,500 staff and has scrapped its growth plans.

Jet fuel traded in Singapore has come off a $181 per barrel peak reached earlier this month, but prices are still 79 percent more expensive compared to a year ago at $158 per barrel, tracking the spike in crude oil.

"It's certainly right up there for being one of the more challenging years that this region has ever faced," said Derek Sadubin of the Centre for Asia Pacific Aviation in Sydney.

"What we have now is a sustained increase, an extreme increase, in their chief input in fuel, so it's going to be a question of how these airlines can adapt."

Nearly all carriers have raised surcharges to cope with the rise in fuel prices, which account for about 40 percent of costs.

While some, such as Singapore Airlines and Qantas, have hedged part of their fuel needs in the futures market, analysts say a recovery of the industry will require fuel costs to drop.

But the outlook for jet fuel remains uncertain as despite the recent pull-back in crude oil, jet fuel premiums continue to be supported by demand from Europe.

BANKRUPTCY RISKS

"We see an increasing risk of more airline bankruptcies or consolidation in the next 12 months if oil prices stay at the current level," said Morgan Stanley analyst Chin Lim.

IATA, which represents airlines operating 94 percent of the world's commercial flights, says 24 airlines have gone bankrupt or stopped operating in just the first six months of this year.

Singapore Air, first among the big Asian carriers to report earnings on July 28, is expected to post a 32 percent fall in net profit for the three months to June 2008 according to a Reuters survey of three analysts.

However, some analysts expect Singapore Air Asia's most profitable and the world's second-biggest carrier by market value, to emerge relatively unscathed from the industry turmoil due to its strong cash position and focus on premium travel.

"One curiousity of SIA is how it manages to stay ahead of the curve despite plunging traffic. Strength in first and business class is probably helping it manoeuvre the turmoil better than its peers," said Standard & Poor's aviation analyst Shukor Yusof.

RED INK

The world's largest air cargo carrier Korean Air Lines is expected to post its first quarterly operating loss in five years due to higher oil prices and slower demand.

A weaker won currency is likely to weigh further on fuel bills and foreign currency debt servicing costs.

Quarterly forecasts were not available for Japan's carriers, but analysts are predicting earnings for All Nippon Airways and Japan Airlines to dip as much as 60 percent for their full year to March 2009.

"Both JAL and ANA are having tough time especially in their China routes. It's a mixture of negative factors such as the (China) earthquake, Tibet issue, so tourists are avoiding China travel," said Credit Suisse analyst Osuke Itazaki.

China's own flag carrier Air China, the world's biggest airline by market value and a shareholder of Cathay, is also expected to be hit by lower passenger volumes in the aftermath of the devastating quake in Sichuan province.

"The high cost of fuel is hitting them, so are visa restrictions, and the effects of the earthquake," said Kelvin Lau, an analyst at Daiwa Institute of Research.

Cathay Pacific, Hong Kong's dominant carrier, is expected to post a 65 percent drop in first-half profit. Earnings will be further hit by a $60 million fine for cargo price-fixing charges leveled by US authorities.

Qantas is expected to report a 40 percent rise in its fiscal 2008 net profit, but net profit for the current year is forecast to nearly halve due to the tough operating environment.

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