Airlines on rack as Air France-KLM issues warning

* Air France-KLM issues profit warning

* IATA announces bleak traffic figures

* Austrian minister slams airline sale "disaster"

By Tim Hepher

PARIS (Reuters) - Air France-KLM (AIRF.PA) became the first major European airline to issue a profit warning since the financial storm broke in the summer, sending its shares down 10 percent as the industry reported its worst demand in 5 years.

Europe's largest airline group, and the world's largest by revenues, said on Friday it would be "very difficult" to reach a target of 1 billion euros operating profit this financial year.

However the airline, which has so far weathered the crisis better than many rivals, said it would remain "comfortably" in the black as long as market conditions did not get worse.

The economic malaise showed few signs of easing as European stocks ignored an attempted recovery on Wall Street and fell by an average 5 percent on a slew of warnings and bad results.

Air France-KLM shares fell 9.8 percent to 10.7 euros in the first few minutes of trading and were briefly suspended.