In December, Iata said the global air transport industry would make a loss of $2.5bn this year.
Iata said passenger demand had deteriorated more than expected and demand for air cargo was even weaker.
However, the body said that the industry's prospects might begin to improve by the end of the year.
The international airline industry lost $8.5bn last year, more than its initial estimate of $5bn, as the final three months of 2008 saw a sharp fall in first-class and business-class passengers and cargo traffic.
The new projection comes as passenger traffic is expected to slide by 5.7% over the year.
Europe - $1bn loss
Asia-Pacific - $1.7bn loss
North America - $100m profit
Latin America - $600m loss
Africa - $600m loss
Middle East - $900m loss
Industry revenues are forecast to fall by 12% to $62bn, worse than the 7% fall in the wake of the 11 September 2001 attacks on the US.
"The state of the airline industry today is grim," said Iata director general Giovanni Bisignani.
"Demand has deteriorated much more rapidly with the economic slowdown than could have been anticipated even a few months ago."
Airlines in Europe and Asia will be particularly hard hit, with North American airlines expected to fare better.
"We used to see Asia as the star, but unfortunately China, India and Japan have big problems," Mr Bisignani told the BBC's World Business Report.
However, it said that low fuel prices were the one piece of good news for the industry.
It expected oil to average $50 a barrel in 2009, down from $99 in 2008.
Mr Bisignani said that there was little to suggest an early end to the downturn.
"While prospects may improve towards the end of the year, expecting a significant recovery in 2010 would require more optimism than realism," he said.
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