BC-AIRLINES/ (UPDATE 2, TV, PIX)

UPDATE 2-Global air industry sees profit, warns on Europe

+ IATA opens annual meeting with raised forecasts

+ Sees global profit $2.5 bln vs $2.8 bln loss in March fcst

+ Ups forecast for European airlines losses to $2.8 bln

+ Ash cloud and labour unrest predominate + Airbus to announce deals at Berlin air show (Recasts with European markets, Bisignani interview)

By Adrian Murdoch and Ben Berkowitz

BERLIN, June 7 (Reuters) - Global airlines banished two years of economic misery with an abrupt turnaround in industry forecasts on Monday, though they were laced with a strong note of caution on Europe's carriers.

European markets fell sharply and the euro hit multi-year lows as a renewed crisis of confidence in government debt and the health of the U.S. economy showed the recovery the industry is counting on is still fragile.

The International Air Transport Association said it now expects global airlines to report a $2.5 billion profit this year, an improvement of more than $5 billion from its forecast of a loss just three months ago.

IATA Chief Executive Giovanni Bisignani said the global economy was improving more quickly than anyone expected, boosting traffic and yields sharply -- something unthinkable even two months ago during Europe's volcanic ash crisis.

But Europe, mired in bad debts and bad feelings from flight cancellations during the ash crisis, is expected to lag -- particularly if a summer of strikes paralyses air travel.

"We have a currency problem, we have the volcano that struck in April ... and we have some tension with labour unions, so those three aspects are making the difference," Bisignani told Reuters Insider TV on the sidelines of the AGM.

IATA most recently predicted worldwide industry losses of $2.8 billion in 2010, as airlines cut prices to fill seats. It said on Monday that Europe is still expected to lose that amount this year, almost 30 percent more than its forecast in March.

The forecast is expected to be the highlight of the opening of IATA's meeting and comments by executives bore that out.

"We are seeing a recovery around the world. I would like to call it a fragile recovery. There is still a lot to be worried about. But companies are sending their people back on the road. Our corporate traffic has picked up quite a bit," American Airlines CEO Gerard Arpey told reporters.

German flagship carrier Lufthansa said Monday passenger numbers were improving, but yields were still below the year-earlier level. LAN CEO Enrique Cueto told Reuters on Monday his airline was optimistic, based on June traffic figures so far.

Scandinavian airline SAS also reported an increase in traffic, with some international routes showing signs of improvement.

BUILDING BUZZ

The general note of industry optimism could spread to planemakers represented at the Berlin Air Show to be held back to back with the IATA summit. A regional event usually dwarfed by the larger Paris and Farnborough air shows, the June 8-13 show could come into its own this year.

John Leahy, sales chief at Airbus, a unit of the aerospace and defence group EADS, told Reuters he would be unveiling deals at the show. There has been speculation that industry heavyweight Emirates, the top Airbus customer, could be bulking up its fleet soon.

Meanwhile, the chief executive of Boeing Commercial Airplanes told Reuters on Monday the planemaker was working on a number of deals to sell 777 and 787 long-haul aircraft.

LABOUR UNREST

But, as so often with the airline industry, the good news is tempered with more bad news. Strikes in Europe and unrest in Asia could add to the industry's woes.

British Airways is in the midst of a series of cabin crew walkouts, and labour unrest looms at Lufthansa.

BA Chief Executive Willie Walsh, in Berlin despite being taunted by union leaders for not staying to negotiate an end to the bitter dispute over conditions, roundly criticised the Unite union that represents the cabin staff.

"They have failed in their efforts and they will continue to fail" to shut down the airline, Walsh told Reuters on the sidelines of a Oneworld airline alliance presentation.

Walsh also said there was no trade-off point for the airline between the cost savings it has made from cuts and the ongoing costs of the strike itself. (Additional reporting by Maria Sheahan, Angelika Gruber and Tim Hepher; Editing by David Cowell)

REUTERS