David Bonderman, founding partner of private equity firm Texas Pacific Group (TPG) and chairman of Ryanair, told the IATA’s annual conference in Paris that losses would deepen next year because of continuing high fuel costs and a market flooded with millions of extra airline seats.

Mr Bonderman, a billionaire based in Texas, predicted that airlines would be cancelling orders for more than 1,000 aircraft because the industry was about to enter a downturn in its economic cycle.

He said: “Today is as good as it gets in the airline industry. It’s going to get worse. In two years’ time we will see everyone cancelling those 1,000 airplanes.”

Mr Bonderman said that low-cost carriers such as Ryanair were less vulnerable to the surplus in capacity because they could still make a profit when ticket prices were falling steeply.

TPG has substantial holdings in both Ryanair and Tiger Airways, a low-cost airline in Singapore. Mr Bonderman said that TPG was also “looking to invest in a low-cost carrier in an emerging market”.

Giovanni Bisignani, director general of the IATA, which represents 261 airlines, blamed the increase in forecast losses for this year on the high cost of jet fuel. “Prices are racing ahead of efficiency gains and robbing our profitability,” he said. “The industry fuel bill will top $112 billion this year, $21 billion more than 2005.” However, he said that there were grounds for cautious optimism because airlines had been able to pass on the extra costs to passengers in the form of fuel surcharges.

“While the fuel price continues to race ahead of efficiency gains, it is truly amazing that profitability has not deteriorated from last year. Losses for 2006 will be $3 billion, slightly less than the $3.2 billion recorded for last year.”

While the IATA is predicting $5.2 billion losses for the American industry this year, it estimates that European airlines will together make a profit of $1.3 billion, slightly down on the $1.6 billion made last year.

Willie Walsh, chief executive of British Airways, told The Times that he shared some of Mr Bonderman’s concerns: “The caution he was giving about airlines going out to order large numbers of aircraft was worth making. Some of the same patterns which caused the industry problems in the past appear to be re-emerging.”

Mr Walsh said that BA would have to order new aircraft next year if it wanted to grow because it was no longer able to squeeze extra flights from its existing fleet.

BA has taken options on ten Boeing 777s for delivery from the end of 2008. Mr Walsh said that he would also be evaluating the stretched version of the Boeing 747, with 450 seats, against the 555-seat A380. Airlines ordered a record 2,000 new aircraft last year.

Global passenger traffic grew by 7.6 per cent last year and the IATA forecasts that it will grow 6.7 per cent this year.

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