GENEVA — The world's airlines are set to post improving financial results this year, but there are potential storm clouds as the Cyprus crisis raises the risk of new eurozone woes, industry lobby IATA said Wednesday.

"Industry profits are taking a small step in the right direction," said IATA chief Tony Tyler, forecasting a 1.6% increase in the sector's net profit to $10.6 billion, up from an earlier 1.3% prediction.

"The improvements in industry profitability are encouraging, but they must be kept in perspective. We are projecting that airlines will make a net profit of $10.6 billion on $671 billion in industry revenues," he said.

"By comparison last year Nestle (IW 1000/37), a single company, made over $11.5 billion in profit on revenues of about $100 billion. Chronic anaemic profitability is characteristic across most of the aviation value chain when compared to other sectors," he warned.

Considerable risks remain and could derail the airline industry's recovery, Tyler said, pointing to controversy over the draconian bailout plans for eurozone member Cyprus.

"European Central Bank commitments with respect to the eurozone crisis and the slow economic recovery in the U.S. should be pointing us towards a durable, if weak, upswing," he said.

"But we have had two false starts already. Improving conditions in early 2011 and 2012 disintegrated as the eurozone crisis intensified. And it could happen again. The impact of the unfolding situation in Cyprus is a risk factor that cannot be ignored," he warned.

Despite those fears, the projected airline industry revenues of $671 billion in 2013 marked an improvement on $12 billion from IATA's last forecast, issued in December.

Cargo demand is expected to grow 2.7%, reversing the declining trend of the last two years, and cargo yields are expected to be flat, marking an improvement on the 1.5% decline previously projected, it said.

Passenger demand, meanwhile, is forecast to grow by 5.4%, up from the 4.5% previously expected.

Fuel prices are expected to average $130 per barrel for the year, or $5.70 more than forecast in December, lifting the total fuel bill to $216 billion.

But overall, fuel is expected to account for 33% of airline costs, unchanged from 2012, IATA said.

Copyright Agence France-Presse, 2013