Dec. 9 (Bloomberg) -- Airline industry losses in 2009 may shrink to half this year’s level as a decline in fuel costs more than makes up for a reduction in the number of people flying.

Carriers may lose a total of $2.5 billion next year, compared with $5 billion in the current 12 months, the International Air Transport Association said today in a press briefing in Geneva, where the trade body is based.

IATA had predicted a $4.1 billion loss for airlines in 2009 as recently as Sept. 3, based on an average oil price of $110 a barrel. With crude today trading at about $43 and the association estimating a price of $60 next year, jet fuel costs have eased for those carriers, many of them in the U.S., that were hardest hit in 2008 after struggling to secure hedging positions.

“The improvement is due to an extraordinary situation for North American carriers,” IATA Chief Executive Officer Giovanni Bisignani said at the briefing. “With very little hedging, they were hit with the full impact of high fuel. To cope, they cut capacity early and are now benefiting from the full impact of low spot prices.”

The predicted loss of $5 billion for 2008 is also lower than a previous estimate of $5.2 billion, which assumed an average oil price of $113 a barrel. Today’s forecast figures the industry’s total fuel bill will fall about $32 billion in 2009. During the year the loss projected by IATA has ranged as high as $6.1 billion in a worst-case scenario.

Traffic Worsens

While IATA’s loss estimates have eased, the industry group now forecasts that international and domestic traffic will decline 3 percent next year, the first drop since 2001, after predicting a 2.9 percent increase.

“The situation is clearly an awful lot better than when oil was at $147 a barrel,” said Nick Cunningham, an analyst at London-based Evolution Securities, referring to the record price for crude reached on July 11. “However, the macroeconomic situation is dreadful and traffic is dropping very, very fast.”

The traffic outlook has been hurt by an economic recession, Brian Pearce, IATA’s chief economist, said in a presentation in Geneva. The airline industry’s customer base has suffered “a massive loss of wealth,” he said, with equity and house prices in many markets down by 25-30 percent.

‘Wealth Loss’

“In the past, this scale of wealth loss has led consumers to cut their spending by 2 to 3 percent, and air travel by more,” Pearce said. U.S. consumer confidence is already at its lowest level in 40 years, he said, while confidence among businesses and consumers in Europe is “not far behind.”

International passenger traffic was already down an average of 2 percent in September and October after growing at more than 6 percent earlier in the year, he said.

Even while describing 2009 as “another gloomy year,” Bisignani said that North American carriers, likely to suffer a combined loss of $3.9 billion in 2008, will next year post a profit of about $300 million, less than 1 percent of revenue.

All regions other than North America will be unprofitable, he predicted. Losses in the Asia-Pacific region will be highest at about $1.1 billion, with carriers there suffering most from a decline in cargo shipments. European losses will widen to about $1 billion, IATA said. The organization represents 230 carriers that carry 93 percent of international passenger traffic.

Dollar Advantage

“U.S. airlines have acted decisively this winter to cut capacity and push up average fares,” said Douglas McNeill, an analyst at Blue Oar Securities in London. “IATA’s new forecasts reflect the success of that strategy, which is increasingly being adopted elsewhere. But the U.S. carriers are also benefiting from their immunity to dollar strength, which their non-American rivals cannot replicate.”

The U.S. dollar has gained almost 18 percent against the euro and 25 percent versus the pound in the past six month, reducing the benefit of the decline in the price of oil for non- U.S. carriers. Crude is priced in the U.S. currency.

Crude oil futures in London will average $73.80 a barrel next year, according to the median price forecast of 18 analysts surveyed by Bloomberg. The front-month Brent crude price on the ICE Futures Europe exchange has averaged $101.93 a barrel this year. Deutsche Bank AG today said it estimates that prices will average $47.50 a barrel in 2009.

IATA economist Pearce also said that while the spot price of jet fuel will be 40 percent lower in 2009 on average, the effective price paid after hedging will likely be only 10 percent to 15 percent lower, with some benefits of lower fuel costs coming only in 2010.

To contact the reporters on this story: Andrea Rothman in Geneva via aerothman@bloomberg.net; Steve Rothwell in London at srothwell@bloomberg.net.

Last Updated: December 9, 2008 13:36 EST