The International Air Transport Association, which represents 240 airlines, said the industry would make a collective profit of $6.7 billion in 2012, up from a previous forecast of $4.1 billion.

In 2013, profits are expected to improve to $8.4 billion, up from a previous forecast of $7.5 billion, IATA said.

The improved outlook is driven mainly by belt-tightening and consolidation in North America in the face of what the airlines body described as a slowing world economy.

Carriers there are expected to make a total of $2.4 billion in 2012, up sharply from $1.7 billion last year, as airlines fly their planes with fewer empty seats and for more hours a day.

In Europe, airlines are no longer expected to post a combined loss this year but will merely break even, IATA said.

Asia continues to post sharp growth with profits of $3 billion expected this year despite concerns over a slowdown of growth in China and exposure to a weak cargo market.

Cargo markets, a barometer of world trade, are stagnant but may pick up in 2013 amid some signs of improved U.S. demand for consumer goods that tend to go by air, IATA officials said.

Airline activity is traditionally seen as a bellwether for the wider economy, with business confidence translating rapidly into demand for premium seats and just under half of global trade by value travel ling by air.

"The U.S. economy is growing but the threat of the fiscal cliff has not been eliminated," said IATA Chief Economist Brian Pearce, referring to the potential impact of steep tax hikes and federal spending cuts budget cuts scheduled to take effect on January 1.

Pearce said world economy as measured by global industrial production was slowing down. International air travel closely tracks industrial production, a broad-based measure of economic activity and one of the most timely, Pearce told Reuters.

CONSOLIDATION PRESSURE

Europe's economic crisis is "far from solved," he said, something that could increase pressure on airlines there to consolidate.

"There are opportunities for further consolidation in Europe," said IATA Director General Tony Tyler, noting the presence of three clusters led by Air France-KLM (AIRF.PA), Lufthansa (LHAG.DE) and British Airways-Iberia (ICAG.L).

"Europe has a lot of airlines. One would expect those three groups would have a gravitational attraction to smaller carriers who find economic conditions too difficult to operate independently," Tyler told reporters.

However a shortage of finance caused by the region's economic crisis could slow the process down, he added.

Airlines claim the growing power of online reservation systems is also harming their ability to eke out extra profits.

One of their chief worries is that online travel agencies do not always make room for products designed to improve the average revenue per passenger, such as premium economy seating. Programming such web features costs money and takes time.

IATA, which sets standards and lobbies on behalf of airlines, announced it would develop ways to help passengers find the type of seats they were looking for and try to persuade online systems to use them. Such systems could also warn hotels and rental firms of delays or changes of plans, it said. (Reporting by Tim Hepher, Robert Evans; Editing by David Goodman and Elaine Hardcastle)

• A Permanent Economic Emergency