The International Air Transport Association (IATA) has upgraded its 2013 profit forecast for the global airline industry.

IATA now expects airlines to collectively achieve a $10.6 billion net profit, compared to its earlier guidance of $8.4 billion. “Industry profits are taking a small step in the right direction,” says IATA Director General and CEO Tony Tyler in a briefing with reporters. “Against a backdrop of improved optimism for global economic prospects, passenger demand has been strong and cargo markets are starting to grow again.”

As the global economy picks up, so do fuel prices. However, costs are rising less than revenues.

IATA Chief Economist Brian Pearce says that “our main worry today is the situation in Europe,” and IATA highlights renewed risks related to the Eurozone debt crisis. Tyler believes that the continuing weakness in the European air transport market will lead to more consolidation of airlines around the three big groups – Air France-KLM, Lufthansa and International Airlines Group (IAG).

“All three are undergoing some restructuring, so they are not in a particularly good position to make large acquisitions,” Tyler remarks. “But smaller airlines will find life increasingly difficult and look at consolidation options.”

Fuel costs for the industry are expected to rise by $6 billion to a total of $216 billion for 2013. IATA believes airlines will have to deal with an average cost of $130 per barrel, compared to $124.30 per barrel as forecast earlier.

Asia-Pacific airlines are expected to contribute around $4.2 billion – or close to half – of the overall industry profit. North American airlines are projected to achieve profits of $3.6 billion, and Middle Eastern airlines $1.3 billion. European airline profits are forecast at $800 million, Latin American carriers at $600 million and African airlines at $100 million. However, there is significant underlying restructuring occurring, with fewer airlines taking a larger share of the profits.

Tyler does not yet see any serious effects from sequestration cuts in the U.S. for the airline industry. IATA has not noticed evidence of longer waiting times at security checks or immigration because of reduced staffing levels.