Middle Eastern airlines are expected to post a profit of $1.4 billion during this year, while globally the airline industry will see a modest improvement in its financial performance, says an IATA forecast.

The numbers for the Middle East is up slightly from the $1.1 billion previously forecast and stronger than the $900 million profit recorded in 2012, IATA said.

The growing role of the region’s airlines in providing connectivity to developing markets is reflected in strong traffic growth. The region’s airlines are expected to add 12.8% in capacity in 2013 and this will be outpaced by demand growth of 13.7%.

The region’s carriers rank third in terms of operating profitability with an Earnings Before Interest and Taxes (EBIT) margin of 3.4%, after Asia-Pacific (5.3%) and North America (4.1%), said the IATA report.

IATA expects global airlines to produce a combined net post-tax profit margin of 1.6% (up from the previously forecast 1.3%) with a net post-tax profit of $10.6 billion (up from the previously projected $8.4 billion).

“Industry profits are taking a small step in the right direction. Against a backdrop of improved optimism for global economic prospects passenger demand has been strong and cargo markets are starting to grow again. The economic optimism is also pushing fuel prices higher. We are seeing a $12 billion improvement in revenue, and a $9-10 billion increase in costs—most of which is related to fuel,” said Tony Tyler, IATA’s Director General and CEO.

Confidence in the airline industry is rising around several factors:

• GDP growth forecasts for 2013 have been upgraded to 2.4%, a significant improvement from the 2.1% in 2012.
• It appears that the bottom of the global industrial production cycle was reached in the third quarter of 2012 after which there has been 6 months of increasing output and improvements to business confidence.
• There is a structural improvement in the airline industry’s financial performance as recognized by a 7% increase in share prices since the beginning of the year, despite a 5% increase in fuel costs.

IATA noted that considerable risks remain which could derail recovery. The outlook is based on evidence of growing business confidence. But the controversy over the draconian bailout proposal for Cypriot financial institutions is a clear indicator that the Euro zone crisis is not over and could take a turn for the worse.  (TradeArabia; IATA)