The world's airlines will return to profit this year and next at higher levels than previously expected, due to an upturn in the market and better capacity usage, industry association Iata said on Tuesday.

However, margins remain low and the sector's recovery is patchy, with European airlines underperforming those in other regions, the International Air Transport Association said in its latest financial forecast.

'Our profit projections increased for both 2010 and 2011 based on an exceptionally strong third-quarter performance,' Iata Director-General Giovanni Bisignani said.

'But despite higher profit projections, we still see the recovery pausing next year after a strong post-recession rebound,' he said in a statement predicting 'tougher conditions'.

Iata, representing 230 airlines covering 93 per cent of scheduled international traffic, almost doubled its estimates of 2010 and 2011 net profit for the sector from forecasts made in September.

It now sees 2010 net profit at $15.1 billion, against September's forecast of $8.9 billion, and 2011 net profit of $9.1 billion against a previous $5.3 billion. Last year, the industry lost $9.9 billion.

Net margins will fall to 1.5 per cent in 2011 from 2.7 per cent this year, after minus 2.1 per cent in 2009.

The return to profit should be set against industry revenues forecast at $598 billion in 2011 and $565 billion this year, up from $482 billion in 2009.

'Any increase in profits is a welcome step in the right direction. But the fact that we can increase our profit forecast by 70 per cent and still be left with a net margin of just 2.7 per cent shows just how far this industry has to go to achieve a normal level of profitability,' Bisignani said.

This year's profit was based on an improved forecast of passenger traffic growth of 8.9 per cent, up from a previous estimate of 7.7 per cent, while average oil prices were in line with previous projections of $79 a barrel.

With fixed costs constant but higher passenger volumes resulting in increased capacity utilisation, the increased revenues went straight to the bottom line, said Iata.

Iata trimmed its forecast for air cargo growth -- an important indicator of world trade and hence economic recovery -- to 18.5 per cent this year from a previous 19.8 per cent, as the post-recession rebound from restocking abated.

Iata sees passenger and cargo demand increasing by 5.2 per cent and 5.5 per cent respectively in 2011, both slightly better than previous forecasts, while the average oil price was expected to rise to $84 a barrel next year.

It said European airlines, already industry laggards, would remain barely in profit overall next year, under pressure from recession and austerity measures in the region and increased air travel taxes in some countries. – Reuters