WASHINGTON, US - UNITED States airlines projected they could lose US$10 billion (S$14 billion) in 2008 due to skyrocketing fuel costs, a sum that would almost match the industry's worst-ever year loss in 2002.

Mr James May of the Air Transport Association on Tuesday also told a joint US Senate hearing on speculative trading in the oil markets that up to 200 communities could lose airline service as a result of carrier capacity cuts that are being imposed to save money.

'This nation's economy is inextricably linked to the viability of its air transportation system. If the airlines continue to spiral downward, so will the economy,' Mr May said.

Wall Street analysts also are predicting multibillion-dollar losses for big airlines that are spending 50 per cent more on fuel this year. Total fuel costs are expected to top US$61 billion, the largest expense for airlines.

Shares of US airlines moved broadly higher on Tuesday as global crude prices slipped from record highs. However, shares of United Airlines, a unit of UAL, were off 2.6 per cent to US$7 after the company projected its 2008 fuel bill would hit US$9.5 billion.

United's disclosure was made as part of Mr May's push in Congress for tougher regulation of oil futures trading.

Airlines believe market manipulation and speculation are behind the record run-up in global crude prices although the Bush administration believes recent price spikes are due mainly to supply and demand.

Mr May said quick legislative and regulatory action is needed to maintain a viable airline industry.

'We are asking for Congress to take steps now to totally close the loopholes and make the market more transparent and balanced, to ensure a level playing field for all,' Mr May said.

Lawmakers also have pushed for tighter oversight. US oil futures regulators said on Tuesday they are moving to impose more limits on overseas trading.

Some Wall Street analysts believe the current airline downturn could be worse than the one that triggered bankruptcies at four major carriers between 2002-07.

Carriers are scrambling to slash capacity and find new revenue through fees for checked luggage and other extras that used to be rolled into the cost of a ticket.

Higher industry fuel costs are a major industry-wide problem. But revenues also are beginning to raise concern with pressure on airlines to boost them significantly to offset higher costs.

Lehman Brothers analyst Gary Chase believes 'cracks are forming' in the airline industry revenue picture but remains cautious about the overall outlook and does not believe there has been a 'sudden weakening' of revenue across-the-board that is 'typical of airline downturns'. Amex airline index was up almost 1.39 per cent.

Some carriers, including US Airways Group and low-cost carrier AirTran Holdings, have reported weaker than expected second quarter revenue guidance while others, like JetBlue Airways and Continental Airlines, are doing better. --Reuters