Goldman Sachs downgrades the Asian airline sector to Neutral from Attractive following the sector’s outperformance in 2H 2010.

“Our downgrade is underpinned by three key reasons: (1) slower traffic growth momentum expected; (2) rising unit costs to result in margin pressure; and (3) sector appears fairly valued.”

Says investors should be selective in 2011, prefers Buy-rated Cathay Pacific (0293.HK), Singapore Airlines (C6L.SG), and CEA H- (0670.HK) and A-shares (600115.SH).

It raises SIA’s target price to $20.50 from $19.50, to reflect a more sanguine outlook in cargo traffic on houses recent upgrades on global demand and trade growth.

The house expects air cargo traffic to grow at an average of 5% on-year for 2011E and 2012E vs previous assumptions of about 1% on year growth, “resulting in a 10%-11% average increase in 2011-2012E EPS forecasts for non-Chinese carriers.”

SIA is +1.4% at $15.40.