India's largest private sector airline is to axe nearly 2,000 jobs in the latest sign of how emerging economies are suffering amid a global downturn.

Jet Airways made the announcement after revealing an unprecedented cost-cutting pact with India's number two private carrier, Kingfisher, which the two companies hope will allow them to weather a severe industry slump.

Buffeted by high fuel prices and plummeting consumer demand, Indian airlines face a turbulent patch. Domestic air travel in India grew at a marginal 2.3 per cent from April to August this year, compared with 38 per cent a year earlier, according to official figures.

The International Air Transport Association estimates the Indian industry is on course to wrack up $1.5billion loss this year, second only to the US.

The forecast underscores the dramatic turnaround in sentiment surrounding the aviation sector across South Asia. Just months ago in India the talk was of airlines that could not recruit enough pilots to meet demand.

Jet Airways and Kingfisher Airlines, previously sworn enemies who control 60 per cent of India's domestic market, said they had decided to work together "in the larger national interest and to help stabilise India's aviation sector."

The deal will cover joint fuel management, ground handling, ticketing and crew sharing. The two groups will also discuss which routes they will fly, but deny the arrangement amounts to a cartel.

In July, it emerged that the state carrier Air India was seeking a £270 million rescue finance package from the government to ride out widening losses.

Shares in Jet tumbled nearly 8 per cent in Bombay.

Wolfgang Prock-Schauer, the chief executive, said: "Jet expects these difficult market conditions to continue for some time Jet has been watching the situation for some time in the hope that it may turn around, but has now reached a stage at which some hard decisions are inevitable."

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