With soaring fuel costs, a rash of bankruptcies and industry consolidation, its fair to say U.S. airline carriers have hit a bit of turbulence. But what about the European airline industry? Like the old saying when the U.S. sneezes, the world catches a cold; will it apply across the pond?  

Judging on who you're talking to the answer is yes and no. 

“I don’t think there is a ripple effect,” said Jens Flottau, the International Air Transport editor for airline trade publication Aviation Week. ‘“European carriers are better protected against the fuel price hike because they can afford hedging contracts and the dollar weakness helps to mitigate the price increase.”

Others, however, aren’t as bold in predicting that exorbitant fuel costs won’t have a strong impact on European air carriers. 

“We are projecting in 2008 that fuel will cost the industry $156 billion," said Steve Lott, a spokesperson for the International Air Transport Association, a global trade group that represents 240 airlines around the world. "That represents 32% of all costs. If you go back to 2003, fuel cost the industry $44 billion and represented only 14% in expenses. No matter what type of airline model you have, anywhere in the world, you’re going to be tested with fuel prices at such a high level.”

British Airways (BAIRY) has seen its stock take a big hit during the past year, despite profits being up. At the Feb. 1 third-quarter earnings conference call, Chief Financial Officer Keith Williams told analysts that “our fuel bill now is as high as our employment costs.”

Nevertheless Adrian Schofield, a writer for Aviation Week’s sister publication, Aviation Daily, pointed out that European carriers may be better equipped to deal with the fuel problem.

“They’re just on much better financial footing,” he said. “It probably goes back a few years. They didn’t have to go through the bankruptcy filings that the U.S. guys went through. Obviously the fuel prices have the same sort of impact, but they’re better able to handle it.” (Delta (DAL), Northwest Airlines (NWA), United Airlines (UAL) and US Airways (LCC) all filed for Chapter 11 in the past five years).

Not to mention they aren’t facing challenges that stem from issues specifically relating to the US economy, such as the credit crunch, subprime mortgage problems, and a weak currency.

“The business cycle is different from the recessions we saw in 2001 and even 1991,”  noted Schofield. “During those two (economic downturns), really all major economies across the world fell together. But today we are seeing a big difference. Europe seems to be holding up pretty well so far.”

But Europe does share some similarities with its U.S. counterparts, like the low-cost carrier market.  Since 2004, 18 European carriers have launched low-cost operations. Much of this can be attributed to the liberalization of markets in Eastern Europe and the emergence of low-cost carriers in countries such as Poland, Ukraine and Latvia.

 Some industry watchers think the plethora of low cost carriers could lead to artificial overcapacity and an over-saturation in the market that may result in similar problems U.S. airlines have faced.   

“Many financial analysts wonder if we are not facing a speculative market with LCC’s (low-cost carriers) creating an artificial demand which doesn’t really exist,” said Antoine Viollet, an editor at a European low-cost carrier trade magazine Air Scoop, via email. 

 The share prices of the low-cost carriers underscore the concerns, he said.  RyanAir (RYAAY), the Dublin-based airline operator has seen year-to-date passenger traffic up 19%. Despite that, its shares are down 45% over the course of the past year. Germany's AirBerlin  and UK low-cost carrier EasyJet  saw stock prices tumble about 60% from last year. 

 “We believe that 2008 is a turning year for European LCC’s. Many bankruptcies will happen and it will lead to the consolidation of the market,” said Viollet, pointing to merger talks between Spanish low-cost carriers Vueling and Clickair.

 But Flottau of Aviation Week disagrees. “I don’t buy that argument,” he said. “I think we have seen a lot of bankruptcies and takeovers already happening and yes, more will follow. But in a downturn, LCC’s can also benefit as business travelers trade down for cheaper seats from legacy carriers.”

Whether it’s a low-cost or legacy carrier, the financial outlook for any airline around the globe seems to ultimately be contingent on what has become a four-letter word in the industry: fuel.

“If you asked any financial analyst few years ago, ‘will airlines be able to survive with fuel at whatever price it is today,’ most would have probably laughed and said ‘we would have probably fewer," said Lott of the International Air Transport Association. "It’s really giving airlines a true test in terms of strength of the business model and how efficient they are. But there’s really not one perfect business model. There’s no silver bullet."