International air freight and passenger traffic picked up in January but rising oil prices caused by political unrest in the Middle East could make 2011 a challenging year, airline body IATA said on Monday.

We are all watching closely as events unfold in the Middle East. The region's instability has sent oil prices skyrocketing, IATA's Director General and Chief Executive Giovanni Bisignani said in a statement.

Violent uprisings in OPEC member Libya reduced oil exports from North Africa, sending Brent futures for April and U.S. crude to two-and-a-half year highs last week. Markets' concern is that unrest will continue to spread and potentially curtail exports from other key producers.

Bisignani said each dollar increase in the oil price meant the airline industry had to recover $1.6 billion in additional costs. Even with good news on traffic, 2011 is starting out as a very challenging year for airlines, he said.

Air freight -- an important measure of world trade -- was 9.1 percent higher in January compared with a year earlier after rising 7.3 percent in December, IATA said.

Passenger traffic rose 8.2 percent compared with a year earlier, up from a 5.4 percent rise in December when severe weather made many passengers cancel their trips.

Higher taxes in the UK, Austria and Germany were also making life difficult for airlines, Bisignani said.

IATA, whose 230 members include Lufthansa and Singapore Airlines , has forecast that airlines will make a cumulative profit $9.1 billion this year and will revise this forecast on March 2.

(Reporting by Silke Koltrowitz; editing by Patrick Graham)

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