Hopes for the battered airline industry were raised today after the global aviation body predicted a strong recovery this year as passengers take to the skies again.

The International Air Transport Association (IATA), which represents around 230 airlines worldwide, slashed its forecast for losses across the industry this year by half to 2.8 billion US dollars (£1.9 billion).

It said passenger demand had surged at the end of the year - a trend that has continued into 2010 thanks to growth areas such as Latin America and Asia.

But IATA warned of a "two speed industry", with the revival predicted to be far slower in the hard-hit European and North American markets.

While passenger demand is expected to rise by 12% across Asia and Latin America in 2010, growth will be far more muted across Europe and North America, at 4.2% and 6.2% respectively.

Any growth will come as a relief to embattled carriers in the UK, such as British Airways, which has suffered plunging passenger numbers.

It said last month that passenger revenues in the first nine months of its financial year were down 13%.

However, signs of a turnaround are beginning to emerge even at premium carriers like BA, which reported its first quarterly operating profit in more than a year for the three months to December 31.

UK airports group BAA yesterday added to the optimism with news of a 2.4% rise in passenger traffic last month compared with February 2009, while domestic UK traffic saw its first increase for two years.

IATA director general Giovanni Bisignani said: "Important fundamentals are moving in the right direction.

"Demand is improving. The industry has been wise in managing capacity. Prices are beginning to align with costs - premium travel aside.

"We can be optimistic, but with due caution."

The group said revenues across the global industry were half way to recovery - 42 billion dollars (£27.9 billion) below the peak seen in 2008 and 43 billion (£28.6 billion) dollars above the low-point last year.

Passenger demand fell by 2.9% across the sector last year, but is expected to rise by 5.6% in 2010.

The sector still faces headwinds, according to the IATA, with oil prices surging again and rising costs still a threat.

The IATA increased its expectations for the average cost of oil from 75 dollars a barrel to 79 dollars.