The International Air Transport Association (IATA) has announced a downgrade to its industry outlook for 2012 - primarily due to rising oil prices.

IATA now expects airlines to turn a global profit of $3.0 billion in 2012 for a 0.5 per cent margin.

This $500 million downgrade from the December forecast is primarily driven by a rise in the expected average price of oil to $115 per barrel, up from the previously forecast $99.

Several factors prevented a more significant downgrade: (1) the avoidance of a significant worsening of the Eurozone crisis, (2) improvement in the US economy, (3) cargo market stabilisation and (4) slower than expected capacity expansion.

“This year continues to be a challenging year for airlines,” said IATA director general Tony Tyler.

“The risk of a worsening Eurozone crisis has been replaced by an equally toxic risk—rising oil prices.

“Already the damage is being felt with a downgrade in industry profits to $3.0 billion.”

Airline performance is closely tied to global GDP growth.

Historically, when GDP growth drops below two per cent, the global airline industry returns a collective loss.

“With GDP growth projections now at 2.0 per cent and an anemic margin of 0.5 per cent, it will not take much of a shock to push the industry into the red for 2012,” added Tyler.

IATA revised upwards its estimated profits for 2011 to $7.9 billion from the previously forecast $6.9 billion.

This was primarily owing to the much better than expected performance of Chinese carriers.

Breaking Travel News caught up with IATA secretary general Tony Tyler at ITB Berlin earlier this year. Read his thoughts on the future of aviation here.