'If you keep prices too high you're going to lose more passengers,' said Mr Geoff van Klaveren, of Exane BNP Paribas, against a background of both companies and tourists cutting back on air travel.

Cut price airline Ryanair's boss Michael O'Leary forecast a reduction in an average ticket of between 15 and 20 per cent by the end of March, and claims to be attracting passengers from more conventional companies like British Airways.

Most airlines nowadays use the yield management system, whereby prices are adjusted by computer on an almost daily basis in line with demand, starting relatively low then rising if a particular flight fills up, or falling if it does not.

'However, company profit margins are narrow, and they cannot really engage in a price war,' commented Mr Didier Brechemier, a consultant with Roland Berger.

Few airlines have yet adopted an aggressive pricing strategy, as they try to recover from the massive cost of fuel which neared US$150 (S$228) a barrel in mid-July, forcing them to slap surcharges on tickets.

While oil has now fallen to a third of this level, companies have held back from price-cutting at the same rate, while from time to time announcing a reduction in the surcharges since September.

At the same time they have adopted other tricks to keep the money coming in, such as the introduction by the leading European airline, Air France-KLM, of a 50 euros (S$97) charge on economy class seats located near the emergency exits, where passengers enjoy more legroom.

The same company is also introducing an extra class between business and economy which will come into effect towards the end of next year, and Brechemier predicted that others would follow suit.

'This project is perfectly matched to the crisis, and we are in a hurry to put it into effect,' said Air France-KLM boss Pierre-Henri Gourgeon, noting that it would allow businessmen to continue travelling in reasonable comfort while saving money.

The global airline industry - forecast to lose US$4.1 billion this year by industry body IATA - is also fast consolidating in a bid to reduce costs by achieving economies of scale.

Last week, German airline Lufthansa announced a takeover offer for loss-making rival Austrian Airlines (AUA) and Irish low-cost airline Ryanair made a 748 million euros cash offer for national rival Aer Lingus.

British Airways said on Tuesday it was 'exploring a potential merger' with Australian rival Qantas Airways as part of a broad tie-up.

BA is also in talks with Spanish airline Iberia and American Airlines. -- AFP