IATA has increased its industry net profit forecast for 2011 to $6.9 billion from the $4 billion profit it predicted in June, but expects 2012 to be a tough year.

Despite its increased forecast, IATA warns that profitability is "still exceptionally weak" - with a 1.2% net margin - considering the industry's revenues of $594 billion.

Looking ahead to 2012, IATA expects profits to fall to $4.9 billion on revenues of $632 million, with a net margin of 0.8%. Passenger markets in 2012 are expected to grow by 4.6%, with cargo growth projected to improve to 4.2%.

"Airlines are going to make a little more money in 2011 than we thought," said IATA director general Tony Tyler. "But we should keep the improvement in perspectiveThe industry is brittle. Any shock has the potential to put us in the red."

Passenger traffic is expected to fare much better than freight, with IATA now forecasting passenger growth of 5.9% for 2011 compared to its previous forecast of 4.4%. Its forecast for freight, however, sees expected volume growth slashed from 5.5% to 1.4%. Freight revenue projections have fallen by $5 billion from the June forecast, to $67 billion.

IATA expects the total fuel bill for the year to come to $176 billion, representing 30% of the industry's costs.

Middle Eastern carriers will benefit the most from better than expected passenger demand, said IATA, and the region's airlines are now expected to make a profit of $800 million. This compares to the $100 million projected in June.

IATA forecasts that North American carriers will deliver a net profit of $1.5 billion in 2011, a $300 million improvement over June's forecast. The forecast for European carriers has improved by $900 million to $1.4 billion.

Asia-Pacific airlines are now expected to return a profit of $2.5 billion, up $400 million on June's forecast. While the effects of the Japanese earthquake and tsunami earlier this year continue to impact supply chains and cargo markets, IATA expects "a strong rebound" later in the year and continuing into 2012.

Airlines in Latin America are now predicted to make a $600 million profit, up from the $100 million projected in June. Meanwhile, African carriers are expected to break even after having earlier been expected to incur a $100 million loss.

IATA sets a pessimistic tone for next year. "It looks like we are headed for another year in the doldrums. With business confidence declining, it is difficult to see any potential for significant profitable growth," said Tyler.

"Relatively stronger economic growth and some rebound in cargo will help Asia-Pacific airlines to maintain their 2012 profits close to 2011 levels at $2.3 billion. The rest of the industry will see declining profitability. And the worst hit is expected to be Europe where the economic crisis means the industry is only expected to return a combined profit of $300 million."

Source: Air Transport Intelligence news