A mixed bag of fortunes awaits the world's airlines in 2012, with some of the larger operators, for now, confident in their ability to return a profit during another year of belt-tightening.

The International Air Transport Association thinks the airline industry will make money this year but expects total profits to shrink to $3.5 billion. This compares to an expected $6.9 billion profit in 2011.

In the Asia-Pacific region, airlines have to deal with a decline in international freight tonnage and a slowdown in the growth of international passenger traffic. There are signs of overcapacity in the marketplace due to the fact that airlines there are committed to taking delivery of aircraft on order.

Malaysia Airlines and Thai Airways International, for example, are both due to start operating the Airbus A380 in 2012. Others, such as AirAsia, Lion Air and Jetstar, have large numbers of narrowbodies coming this year.

Margins will be squeezed in the region as airlines resort to price discounting in an effort to fill seats in their burgeoning aircraft fleet.

Airlines in the Asia-Pacific region also have to contend with the fact that Europe is no longer going to be such a huge source of business. As a consequence, Asia-Pacific airlines are reducing services to Europe and focusing their attention on routes within their region. But whether the growth in passenger traffic there will be strong enough in 2012 to support the increase in capacity is questionable.

For the majority of North American legacy carriers, capacity control will dominate the early part of the year, especially in their long-haul markets where growing competition, global economic woes and the employment of various joint ventures are having a notable effect. And while the new generation of airline managers has a deep pool of reserve capacity to rely on, should 2012 prove more buoyant than expected, it would be a surprise to see the likes of Delta Air Lines, United Continental Holdings or US Airways significantly change their current supply and demand philosophies in the coming 12 months.

Among the legacy carriers, AMR Corp.'s Chapter 11 reorganization will dominate the year. Shrinkage is a certainty, even at the early stages of this restructuring, although there are still questions about how much capacity Chief Executive Thomas Horton and his team plan to cut. And while all expectations are for AMR to shutter its maintenance operation, it will be interesting to see how far the airline adopts the “power-by-the hour” concept for engine overhauls on a fleet that from 2013 will combine Airbus and Boeing narrowbodies powered by at least two different engine types.

AMR's reorganization also could reshape the regional airline industry as management tackles the cost structure at its American Eagle affiliate.

U.S. regional airlines could use a boost in 2012 to alleviate the pain that will continue from 2011. SkyWest, for instance, still struggles with the consolidation of its ExpressJet purchase into its Atlantic Southeast Airlines operations, and new contractual obligations from ExpressJet's contract with United Continental will likely affect the operator's bottom line for months to come, if not all of 2012. But this pales in comparison to the troubles at Republic Airways Holdings—where attempts to integrate Frontier Airlines' branded operation with the operator's capacity purchase model has proved near fatal—or Pinnacle Airlines Corp., which is hoping that the generosity of partners like Delta will help it avoid bankruptcy protection from its creditors.

The merger between Southwest Airlines and AirTran Airways will mark a significant point in U.S. airline history, and it will introduce the low-cost giant to the international stage overnight.

Mexicana de Aviacion's bankruptcy continues to affect Mexico's airline industry, and with a presidential election looming, the state-run carrier may still have some effect on the country's landscape for much of 2012, even though it has been grounded since August 2010. The only reasonable remedy would be a court-ordered liquidation that would free slots at Mexico City's airport and possibly grant Aeromexico access to Mexicana's large MRO operation. But political concerns may limit the power of the bankruptcy judge on the case.

There is also talk of court protection for Air Canada, but labor concerns should be the only issue for that airline in 2012. Elsewhere in Canada, WestJet Airlines could unveil plans to launch long-haul service, maybe to Europe.

Government intervention also will play a role in 2012, with new fare disclosure rules potentially affecting how U.S. airlines implement ancillary fees. And there is, of course, the introduction of the European Union's emission trading system (ETS), which will be a burden for airline balance sheets once the amount of carbon emission certificates needed is calculated in early 2013.

According to the International Air Transport Association (IATA), the EU ETS is expected to cost airlines €900 million ($1.14 billion) this year and up to €2.8 billion in 2020. The real costs will greatly depend on the price of carbon certificates, which has been significantly lower in recent months.

A bigger concern stems from the European Union's sovereign debt and subsequent financial crisis, which has a dampening effect on economic growth in even the best-performing countries and much more so in the weaker ones such as Ireland, Portugal, Spain or Italy. Some, such as Greece, will even see their economies continuing to contract, and with aviation growth directly linked to GDP, some airlines could be in serious trouble.

The economic environment will make it more difficult for various governments to sell their airlines as planned, but many such projects are scheduled for 2012. Ireland wants to divest its stake in Aer Lingus. Portugal has to dispose of TAP Portugal as part of the European financial rescue package it has received. Latvia's government just took control of Air Baltic but wants to sell it again this year.

Other countries are also trying to dispose of their national carriers: Poland is looking for investors in LOT Polish Airlines; the Czech Republic is trying to find a buyer for CSA Czech Airlines; and Hungary is searching for a new private owner for Malev. While there are some expressions of interest already for players such as TAP, which has a strong presence in the Europe-Latin America market, the Eastern European airlines will continue to struggle.

Middle East carriers have been accustomed to strong growth in the past few years, but that has been slowing recently in at least part of their networks, particularly European routes. Carriers are feeling the effects of high fuel prices on their balance sheets, with Emirates having reported a massive drop in profits in the first half of its 2011 fiscal year. Slower economic growth combined with higher fuel prices may mean that governments will have to wait even longer until some other carriers in the region, such as Etihad Airways or Oman Air, reach profitability. One item to watch in the region is aviation policy, with airlines pushing their governments to introduce more open traffic regimes. Some countries, Saudi Arabia among them, are beginning to open up more, but overall progress is slow.

African air travel is benefitting from reinforced and new trade links to Asia, but much of that traffic is channeled through hubs in the Middle East. African carriers such as Ethiopian Airlines and Kenya Airways are benefitting, too, but intra-African growth is still hampered by old-fashioned aviation policies, tedious regulatory processes, security concerns, corruption and infrastructure constraints. One of the continent's biggest carriers, Egyptair, is struggling to resume normal operations following the revolution and continued unrest in the country. Egyptair is aiming to become less dependent on local demand by establishing more international connections at its Cairo hub.

Latin America is seeing the formation of one of the world's biggest airline groups, Latam, made up of LAN Airlines and Grupo TAM. With most hurdles behind it, the tie-up is expected to be completed in the spring. Other carriers in the region are seeing major development, too, with both Avianca-Taca and Copa Airlines set to join the Star Alliance in early summer. In Colombia, the second-biggest market in the region behind Brazil, LAN Colombia is being established through LAN Airlines' takeover of ex-low-cost carrier Aires.

The aviation sectors in countries such as Peru are expected to continue rapidly expanding.

The existing Latin American powerhouses are gaining further strength, but others remain in serious trouble. Argentina's government is keeping Aerolineas Argentinas aloft with massive financial aid, and many doubt that another recently launched restructuring package will be successful. In Ecuador, TAME is in urgent need of fundamental reform, and the government has initiated efforts to that end.

As always, there is no doubt the airline industry will provide yet another year packed with drama.