The International Air Transport Association (IATA) has predicted that the world's scheduled airlines could lose as much as $9bn in 2009 – nearly twice the level of losses it forecast just three months ago –

and has revised its 2008 loss estimate upwards to $10.4bn from the previous estimate of $8.5bn. Passenger demand in 2009 is also expected to contract by 8% to 2.06bn travellers compared to 2.24bn in 2008.

In his ?State of the Industry? address to 500 of the industry?s top leaders gathered in Kuala Lumpur for the 65th IATA AGM and World Air Transport Summit, IATA Director General Giovanni Bisignani told members that the 'economic meltdown' was taking a heavy toll on the industry.

?There is no modern precedent for today?s economic meltdown. The ground has shifted. Our industry has been shaken. This is the most difficult situation that the industry has faced.

‘After September 11, revenues fell by 7%. It took three years to recover lost ground, even on the back of a strong economy. This time we face a 15% drop – a loss of revenues of $80bn – in the middle of a global recession. Our future depends on a drastic reshaping by partners, governments and industry. We cannot bear the cost of government micro-regulation, crazy taxation and partners abusing their monopoly power,? said Bisignani.

He added that recession is the most significant factor impacting the industry?s bottom line and IATA?s revised forecast now sees revenues declining by an unprecedented 15% ($80bn) from $528bn in 2008 to $448bn in 2009.

Air cargo demand is expected to decline by 17%. In 2009, airlines are forecast to carry 33.3m tonnes of freight, compared to 40.1m tonnes in 2008. Passenger demand is expected to contract by 8% to 2.06bn travellers compared to 2.24bn in 2008. The revenue impact of falling demand will be further exaggerated by large falls in yields – 11% for cargo and 7% for passengers.

IATA, which represents some 230 airlines comprising 93% of scheduled international air traffic, has also identified several risks and challenges ahead, as Bisignani explained.

Top of the list is fuel. IATA says that the industry fuel bill is forecast to decline by $59bn to $106bn in 2009. It believes that fuel will account for 23% of operating costs with an average price of oil at $56 per barrel (Brent). By comparison, the 2008 fuel bill was $165bn (31% of costs) at an average price of $99 per barrel.

?The risk that we have seen in recent weeks is that even the slightest glimmer of economic hope sends oil prices higher. Greedy speculation must not hold the global economy hostage. Failure to act by governments would be irresponsible,? said Bisignani.

He then turned to efficiency gains, pointing out that over the last decade, labour productivity has improved by 71%, fuel efficiency by 20% and load factors rose by seven percentage points. He said the dramatic downturn in demand could push non-fuel unit costs higher, which cannot be cut in proportion.

At the same time, he said that cash reserves of $70bn (13%) of revenues are much stronger than the 9% reserve that airlines had in 2000. Some of this is being funded by the $170bn industry debt, or by asset sales. Bisignani said: ?We are in a better cash position than when we faced the challenges of September 11. But our pockets are not that deep. A long L-shaped recovery could drain the industry of cash,? he said.

Careful capacity management is also vital, said Bisignani. Global load factors for the first quarter of 2009 are down about three percentage points compared to the previous year. This is less than the falls experienced in some recent crises as a result of airlines better matching capacity to falling demand. Nonetheless, Bisignani said that the 4,000 aircraft expected to enter the commercial aviation fleet in the next three years will make this an ongoing challenge.

Last, but not least, he pointed to the continued need for strong partnerships. He said that consolidation within political borders (including Air France-KLM, Lufthansa-Swiss, Delta-Northwest, Cathay Pacific-Dragonair) has created stronger players. But archaic limitations on ownership continue to prevent broader consolidation and partnerships across borders.

Turning to the prospects for airlines, Bisignani said that carriers in all regions are expected to report losses in 2009. He said that North American carriers are expected to show a loss of $1bn. However, this is significantly better than the $5.1bn in 2008. He said that limited hedging by US carriers exposed the US industry to rising fuel prices in 2008. This turned into an advantage in 2009 by giving US carriers access to lower spot prices. Bisignani added that early capacity cuts are also helping.

Meanwhile, European carriers are expected to post losses of $1.8bn with collapsing demand for premium services in all major markets served by the region?s carriers (intra-Europe, North Atlantic and Europe to Asia).

IATA further predicts that the Asia-Pacific region's carriers will post the largest losses at $3.3bn. Japan, the region?s largest market, is in deep recession. The growth markets of China and India are delivering major losses as export-driven demand slows. This is a slightly better performance than the $3.9bn that the region?s carriers lost in 2008, he said.

IATA also predicts that Middle East carriers, despite strong traffic growth, will see losses deepen to $1.5bn. It says that the region?s intercontinental hubs are vulnerable to recessionary impacts in both European and Asian source markets.

Latin American carriers are also expected to post a loss of $900m, as the impact of the recession in the US and China weakens demand for the region?s commodities and African carriers are expected to lose $500m. This is the result of a loss of market share combined with the impact of the recession.

Bisignani said: ?We cannot manage in these unprecedented times with one hand tied behind our back. Airlines need the same commercial freedoms that every other industry takes for granted – access to global markets and capital.?

In a similar vein, Bisignani urged governments to avoid protectionist policies as they stimulate economies: ?The forces of de-globalization are gathering strength. World trade is already suffering with a 15% downturn. Protectionism is the enemy of global prosperity.

?In the 1930s, it prolonged the recession. And it will not work today. To build a strong global economy, we must fight hard to keep the world trading,? said Bisignani.