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The decline in prices for jet fuel is the primary reason for a rise in the outlook for airline profits in 2013, according to the International Air Transport Association (IATA). Ancillary revenues, the IATA’s term for all those fees airlines now charge, are the other key driver for the profit outlook.

The IATA has raised its profit outlook from an industry net profit of $11.7 billion to $12.9 billion in 2013 and from $16.4 billion in 2014 to $19.7 billion. Net profit margin in 2013 will rise from 1.1% in 2012 to an expected 1.8% in 2013 and 2.6% next year. Total revenues next year are forecast to rise to $743 billion.

IATA Director General and CEO Tony Tyler said:

Competition is intense and yields are deteriorating. Cargo volumes haven’t grown since 2010 and cargo revenues are back at 2007 levels. The passenger business is expanding more robustly. Some airlines will out-perform our estimates and others will under-perform. But, on average, airlines will only make a net profit of about $5.94 per passenger in 2014.

Without those ancillary revenues, however, the IATA noted that “the industry would be making a loss from its core seat and cargo products.”

Reduced fuel consumption probably plays an even larger role however. The IATA notes that in 2004 the industry carried 2.0 billion passengers and 38 million metric tons (tonnes) of cargo while consuming 65 billion gallons of fuel. In 2014 the industry is forecast to haul 3.3 billion passengers (up 64%) and 52 million tonnes of cargo (up 37%) on 76 billion gallons of fuel, a rise of just 17% in fuel consumption.

North American-based airlines are expected to lead the industry, posting a profit of $5.8 billion in 2013 and $8.3 billion in 2014. The IATA cites airline mergers, such as the recently completed merger between American Airlines and U.S. Airways to form American Airlines Inc. (NASDAQ: AAL), as helping to “improve asset utilization to very high levels and generate efficiencies.” The association notes, however, that the recent U.S. budget deal risks damaging the industry by establishing higher fees on airlines and passengers.

For the fourth quarter of 2013, American Airlines is expected to post earnings per share of $0.34, compared with a loss of $0.23 in the same period a year ago. The consensus estimate for revenues is $8.99 billion, up more than 50% from the fourth quarter of 2012. Full-year estimates are similarly encouraging: EPS of $2.51 compared with a loss of $0.39 a year ago and revenues up more than 52%. The year-ago figures are based on U.S. Airways results.

United Continental Holdings Inc. (NYSE: UAL) is expected to post EPS of $0.05 in the fourth quarter on revenues of $9.09 billion, compared with a loss of $0.58 on revenues of $8.7 billion in the same period a year ago. The fiscal year consensus estimate calls for EPS of $2.12 on revenues of $38.03 billion, compared with EPS of $1.59 on revenues of $37.15 billion a year ago.

Delta Air Lines Co. (NYSE: DAL) is forecast to post EPS of $0.61 on revenues of $8.97 billion in the fourth quarter, up from EPS of $0.28 and revenues of $8.6 billion in the fourth quarter of 2012. The full-year consensus estimate calls for EPS of $3.11 on revenues of $37.66 billion, up from EPS of $1.88 billion and revenues of $36.67 billion.

Risks to the IATA projections are mainly focused on regulatory issues and increasing taxes. According to Tyler, “Some governments even appear to be backtracking on deregulation and are micromanaging in areas such as passenger rights.” Yup, it’s an industry association all right.