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Airlines see profits rising 58 percent in 2013

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(Globalpost/GlobalPost)

By Robert Evans

GENEVA (Reuters) - The global airlines body IATA predicted on Wednesday that the industry would increase profits by 58 percent this year, driven by growing passenger and cargo demand in emerging markets and better prospects for the world economy.

But IATA, the International Air Transport Association, warned that the spin-off from the Cyprus banking crisis and its effect on the stability of the euro could reverse the upward trend in total industry revenues.

The grouping which represents some 80 percent of global carriers, said it expects them to make a net profit of $10.6 billion (7 billion pounds) in 2013, up from an earlier forecast of $8.4 billion and well above the $6.7 billion achieved in 2012.

"Against a backdrop of improved optimism for global economic prospects, passenger demand has been strong and cargo markets are starting to grow again," Tony Tyler, IATA's director general and chief executive, told a news conference.

"It's a small step in the right direction. It will raise the airline industry's net profit margin to 1.6 percent," he said. In 2012, profitability was just one percent.

Leading the field in expected absolute revenue growth, based on figures for the first quarter, are airlines in the Asia-Pacific region where China's domestic travel market is expanding rapidly, said the body's chief economist Brian Pearce.

Overall revenue for the industry is now expected to hit $671 billion this year, $12 billion up on the earlier forecast issued at the end of 2012, and versus $637 billion in 2012.

But costs -- mainly related to fuel -- were also expected to rise by $9-10 billion, according to IATA.

The Geneva-based body said passenger traffic is expected to rise by 5.4 percent compared with the previous prediction of 4.5 percent and the 5.3 percent growth of 2012

Cargo, which saw negative growth of 1.5 percent last year, is likely to be up 2.7 percent, 1.3 percent more than forecast last December in IATA's year-end review.

LEAN PERIOD

Cargo, which has gone through a lean period since the global financial crisis of 2008-2009, is a key indicator of the health of world trade since around 33 percent of traded goods, in value terms, are moved by air.

"Considering that the market contracted by 2 percent last year and by 0.7 percent the year before, this is an important change in the trend," said Tyler. The new forecast reflected improved business confidence and industrial production growth.

The World Trade Organisation itself predicts growth in global commerce, which went into a net decline in the wake of the financial crisis after almost a decade of expansion, of 4.5 percent this year after increasing by 2.5 percent in 2012.

Tyler said Asia-Pacific region airlines would contribute most -- some $4.2 billion -- to the increase in global industry and would, as the carriers of some 40 percent of world air cargo, benefit most from its recovery.

European carriers were expected to be among the weakest performers this year with expected profits of $800 million, more than double the $300 million last year but exposed to any further euro zone crisis.

The turmoil around Cyprus that broke over the weekend, the IATA chief said, also posed "a very significant risk" to the overall forecast which had been partly based on "a stable, if weak, euro zone economy."

Improving trends -- and growth predictions -- in the performance of the global airline industry lost steam in both 2011 and 2012 when the European currency hit problems and this could happen again, Tyler declared.

North American airlines, he said, were now expected to record profits of some $3.6 billion this year, up almost 50 percent on 2012. Middle East carriers were likely to return profits of $1.4 billion against $900 million last year.

(Editing by Keiron Henderson)

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