OTTAWA - Canada's airline industry is experiencing turbulence amid economic jitters and intensifying competition, says a report released by the Conference Board of Canada on Friday.

The Ottawa-based economic forecaster estimates the sector will lose $165 million this year as business and leisure travellers curb their spending in an uncertain economic environment.

"The European debt crisis is not over and the U.S. economic recovery remains sluggish. At home, Canadians are turning their attention to paying down their debt and are growing more cautious when it comes to spending," said Michael Burt, the board's director of industrial economic trends.

"Given this weaker confidence and the deceleration in world economic growth, Canadian consumers and businesses are likely to be more cautious about their travel spending in the coming months."

Next year, Canadian airlines are expected to eke out $231 million in profits, posting a modest 1.2 per cent profit margin — well below that of previous years.

The good news is that fuel prices are cooling off this year compared to 2011, when they increased more than 30 per cent and the industry lost $900 million.

Competition is also intensifying in the industry, with Air Canada (TSX:AC.B) planning to launch a low-cost carrier that will go head-to-head with the likes of Sunwing and Air Transat (TSX:TRZ.B) for holiday travellers.

And WestJet (TSX:WJA) has been signing dozens of partnerships with international airlines such as British Airways and American Airlines to funnel more passengers into its network.

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