The global airline industry could post losses of up to $5,2-billion in 2008, the International Air Transport Association (Iata) said on Wednesday, using an average crude oil price of $133 a barrel.

While there has been some relief in oil prices in recent months, the year-to-date average was $113 a barrel, which Iata said was $40 a barrel more than the average for 2007. Fuel was expected to rise to 36% of operating costs, up from 13% in 2002.

“The situation remains bleak. The toxic combination of high oil prices and falling demand continues to poison the industry’s profitability. We expect losses of $5,2-billion this year,” said Iata DG and CEO Giovanni Bisignani.

The association also announced industry traffic for July, which showed a continued slowing of demand. July year-on-year passenger demand growth fell by 1,9% to its lowest level in five years.

However, capacity doubled by that amount, 3,8%, indicating that service cuts was not keeping pace with the all in demand. This, Iata stated, pushed the load factor for the month to 79,9%, a drop of more than 1% compared with July 2007.

Cargo demand in July contracted by 1,9% compared with 2007, and Asia-Pacific carriers, the largest players in the cargo market, were hit with a 6,5% drop in demand.

As a result, Iata has revised its traffic forecast, stating that passenger traffic was now expected to grow on average by 3,2% instead of 3,9%, and air freight volumes by just 1,8% instead of 3,9%.

This was only half the pace of expansion seen in 2007, and was boosted by the stronger growth at the beginning of the year.

Bisignani said this crisis was highlighting the need for greater commercial freedom. “Airlines are facing enormous challenges. To be successful and continue providing jobs to 32-million people and supporting $3,5-trillion in economic activity, airlines must be able to do business like any other business.”

He added that more airlines had gone bust in 2008 than in the aftermath of 911.

With an expected oil price of $110 a barrel and continued weak growth, the 2009 industry losses were expected to continue at $4,1-billion. The 2009 fuel bill was expected to rise as hedging offered less protection.

“While we expect the bottom line to improve to about $1-billion next year, the industry will be $4,1-billion in the red. This crisis is reshaping the industry in more sever ways than the demand shocks of severe acute respiratory syndrome or 911,” said Bisignani.