IATA says business travel demand holds up

• Asia seen as driver of global growth
• Oil prices remain a concern
• Japan should show “pretty full recovery” by year-end

SINGAPORE (Reuters) - Airlines pieced together encouraging news for the global economy last week, spurred by a pick-up in business confidence and cargo, at a conference overshadowed by profit fears and growing trade tensions.

Airlines representing 93 percent of world traffic were given a respite from strikes, oil prices and profit warnings with a prediction from their main trade association that world trade would pick up and that Japan’s crisis would ease by end-year. “Business travel is still solid. There has been a dip due to the Japanese earthquake but we don’t expect that to be permanent,” Brian Pearce, chief economist of the International Air Transport Association (IATA), said.

After flattening out from a big recovery seen last year, when factories scrambled to ship components to get producton lines moving again after the financial crisis, air cargo movements should resume growth in the second half, he said.

About 35 percent of global trade by value moves through airports and the forecast represents increasing confidence in demand for capital goods and high-value components, while premium travel is closely tied to business confidence.

IATA, which groups 230 carriers, halved its forecast for industry profits in 2011 to $4 billion this week fron $8.6 billion. Profits are down over three quarters from last year, due mainly to higher oil prices and setbacks in the economy.

The geographical story remains mixed, Pearce said.

“You are seeing the Asian, South American and many African economies actually doing extremely well at the moment. They are certainly not being held back by any of the debt problems that we currently see many European economies being held back by.”

Chinese domestic traffic, which is often regarded as a barometer of the domestic stimulus in the world’s second-largest economy, had dipped temporarily as authorities moved to head off inflation but should return to a growth path.

Japan, he said, should show a “pretty full recovery” in traffic by the end of the year as the impact on global supply chains from the March 11 earthquake and tsunami tapered off.

Asian airlines are aggressively pursuing growth through alliances and tie-ups with other carriers. Singapore Airlines announced a tie-up with Virgin Australia after pledging to set up its own long-haul budget carrier.

Airlines provide a gauge for key parts of the economy as they benefit from discretionary travel from businesses and cargo shipments that along with shipping refelect industrial patterns in Asia. IATA says the airline industry supports some $3.5 trillion in economic activity or 7-8 percent of global GDP.

But the shift of economic power and wealth eastwards and southwards from the developed econmies in the past decade has stoked tensions that erupted in a rare outburst at IATA, a trade lobby run rather like an international organization.

Gulf airlines led by Qatar Airways rounded on European airlines and Canada for blocking access to their markets, while European airlines accuse them of raking in hidden subsidies.

The three-day conference opened with a showdown between airlines and the European Union over an EU emissions trading plan that foreign governments regard as a stealth tax, leading to warnings that China and others could retaliate.

Meeting in the tenth anniversary year of 9/11, airlines were also left acutely aware that they and other forms of passenger transport remain most at risk from terrorism. “The airline and air industry continues to be a prime target for terrorists, but we’ve seen from recovered intelligence etc that they are also focusing a lot on mass transit,” said Interpol Secretary General Ronald Noble.