The global aviation industry could run up losses of more than US$5 billion this year if oil prices spike by more than anticipated in light of the tensions building up over Iran's nuclear program, the industry's trade group said yesterday.

The International Air Transport Association said it now expects earnings will likely decline to US$3 billion in 2012. That's down from December's forecast of US$3.5 billion, based on an expectation that oil prices will average US$115 a barrel. At present, the benchmark New York rate is trading at nine-month highs around US$107 a barrel.

Tony Tyler, IATA's CEO, said the industry's diminished profit forecast for 2012 could turn to losses of more than US$5 billion if oil prices spike to US$150 a barrel due to Western tensions with Iran.

"I must emphasize that the industry is fragile," he said, pointing to global growth forecasts of 2 percent for this year. "Historically, if GDP falls below 2 percent, the industry returns a collective loss. So it would not take much of a shock to turn our very modest profit projection to a net loss."

"Indeed that shock could be oil," he added. "Such a shock would link to a fall in GDP growth to 1.7 percent and we could see losses in excess of US$5 billion."

However, the Geneva-based trade group said its most pessimistic fears of last December have been somewhat eased. It warned then that airlines could post losses of US$8.3 billion if the crisis in the 17-country eurozone got much worse. But the trade group said a massive liquidity operation by the European Central Bank and a second bailout for Greece have eased its concerns, at least temporarily.

"It appears that a worsening of Europe's sovereign debt crisis has been avoided for now," Tyler said. "But this has been replaced by rising oil prices as the number one risk that the industry faces."

IATA said European carriers will lose US$600 million next year, down from weak profits of US$1 billion in 2011.

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