IATA expects the industry to post collective losses of $5.6 billion for 2010 compared with its previous forecast of $3.8 billion.
The revised figure is nevertheless an improvement on the projected loss of $11 billion for 2009.
"The worst is likely behind us," says IATA director general Giovanni Bisignani. "For 2010 some key statistics are moving in the right direction.
"Demand will likely continue to improve and airlines are expected to drive down non-fuel unit costs by 1.3%.
"But fuel costs are rising and yields are a continuing disaster. Airlines will remain firmly in the red in 2010, with $5.6 billion in losses."
IATA expects European carriers to post the largest losses of any region for 2010, at $2.5 billion.
North American carriers are forecast to reduce their losses from $2.9 billion to $2 billion, while Asia-Pacific carriers will cut losses from $3.4 billion this year to around $700 million.
IATA predicts small losses for the Middle East and Africa and a small profit for Latin American carriers.