Airlines are at last beginning to fill vacant business-class seats in a sign that a slump in cross-border trade is easing, an industry body said on Thursday.

Latest July statistics from the International Air Transport Association add to flickering signs of recovery in the economy but offer little relief for the battered finances of airlines themselves since yields remain poor, the Geneva group said.

In July the number of first- or business-class travelers on international markets fell 14.1 percent from the same month last year, less than the 21.3 percent decline seen in June.

Premium travel on international markets, which is mostly for business, is closely correlated to world trade which bottomed out in May and started to turn up in June, IATA said.

This improvement in cross-border trade is boosting business travel but demand is still very weak compared to the recent past and there remains much excess capacity, producing intense competition.

On Tuesday IATA raised its forecast for total airline losses in 2009 by $2 billion to a record $11 billion.

Premium seats are the most lucrative sector for airlines. Many business people have downgraded to economy or shunned air travel during the economic crisis, prompting carriers such as Air France to try out new premium economy products.

The positive IATA traffic report underscored European data showing the euro zone's trade surplus grew more than expected in July, with exports rising from the previous month.

Airlines have also individually been reporting slowing declines in their traffic in August.

BANKERS' LIFESTYLE CURBED

Weak demand and a dearth of trade finance -- two subjects being tackled by G20 nations -- had not only emptied business cabins but also severely depressed airlines' cargo operations.

Tens of thousands of airline jobs have been cut this year.

Passenger numbers are now starting to turn up but there is a long way to go before activity returns to levels seen in 2007 and early 2008, IATA said.

Moreover, with economic growth forecast to be relatively weak and much excess capacity (in the market), the problem of low yields remains. Yields are average revenues per seat sold.

Although economy yields have been partially supported by the arrival of business travelers -- they usually book later and tend not to seek out the most restrictive cheap fares -- the hole left by lower business-class activity tends to be bigger.

Those returning to premium class do not yet include many employees of large corporations, whose travel departments still have their teeth into costs. Nor has the high life returned to the Atlantic market, where bankers routinely flew first class.

Bank bonuses may be back but it seems that traveling at the front of the aircraft is not, IATA said.

July's upturn was felt most strongly in Asia, IATA said.

Delta Airlines and AMR Corp's American Airlines are in rival talks to invest in Japan Airlines (JAL) as they eye growth in Asia beyond the recession.

Japan's new transport minister said JAL <9205.T> must not be allowed to fail, indicating the state would back the loss-making carrier as it seeks fresh funding for a cost-cutting plan.

In London, British Airways expressed interest in UK airline bmi as airlines position themselves for a further round of consolidation to grab slots and reduce losses.

BA has also held long-running talks with Iberia and both plan to form a transatlantic alliance with American.

(Additional reporting by Nobuhiro Kubo, Jan Strupczewski, John Stonestreet, Editing by David Cowell)

Japan Airlines American Airlines