IATA has cut its airline industry profit forecast for next year to $3.5 billon and warned failure to tackle the Eurozone banking crisis could drive the sector into heavy losses.

While IATA has cut its 2012 industry forecast by $1.4 billion from the $4.9 billion it was forecasting in September, it said the Eurozone crisis puts a severe downside risk on its outlook for next year.

"The biggest risk facing airline profitability over the next year is the economic turmoil that would result from a failure of governments to resolve the Eurozone sovereign debt crisis," said IATA director general Tony Tyler. "Such an outcome could lead to losses over $8 billion - the largest since the 2008 financial crisis."

IATA has kept its industry profits forecast for the current year unchanged at $6.9 billion, though the different regional contributions are much changed. In 2011 it now sees Asia-Pacific airline profits of $3.3 billion - $800 million higher than it projected in September - and profits $500 million higher at $2 billion for North American carriers. But it cut its profits forecast for this year for European, Middle East and Latin American carriers.

For 2012 IATA sees even more problems for European carriers. It is projecting European carriers slipping to losses of $600 milion - or to as much as $4.4 billion in a worst case scenario for the Eurozone. It sees most of the industry profits next year generated from Asia Pacific airlines, $2.1 billion, and North American carriers, $1.7 billion.

"The outlook is quite different by region. Economies are growing at different speeds," noted IATA chief economist Brian Pearce. "It's very much a two speed environment for 2012.

"Our central forecast is for the industry to see lower profits [in 2012]," Pearce added, but stressed this outlook is based on policy-makers solving the Eurozone crisis. "So we think its important to point out there is a pretty substantial downside risk at the moment."

Source: Air Transport Intelligence news