Airlines are recovering strongly from the crisis, as passengers, freight and pricing power return, the airline industry association IATA said on Thursday, halving its forecast for a 2010 loss.

With capacity for both passengers and cargo hitting record levels at the end of last year, all indicators are moving in the right direction, and the recovery is much better than expected, IATA Director-General Giovanni Bisignani said.

The recovery -- still leaving the industry deeply in the red -- is good news for both the industry and the global economy as a whole, indicating that exports are reviving, he said.

IATA estimates that 30 percent of world trade by value is moved by air freight.

We are moving in the right direction. The recovery is strong. But we are still at pre-crisis levels, Bisignani told a news conference.

IATA said airlines would lose $2.8 billion this year, half the $5.6 billion loss it forecast in December.

IATA, which groups about 230 airlines, including Air China <601111.SS>, Lufthansa , Singapore Airlines and Skywest , cut its estimate of the 2009 loss to $9.4 billion from December's $11.0 billion.

Passenger demand would rise by 5.6 percent in 2010 after falling 2.9 percent last year, while cargo demand would jump 12.0 percent after an 11.1 percent fall, IATA said in its updated financial forecast.

Capacity usage recovered strongly at the end of last year, with airlines passenger load factor -- a key industry measure of capacity -- hitting 75.9 percent in January while cargo utilization was at 49.6 percent.

Tighter supply and demand are bringing a return of pricing power, with yields on passenger business now forecast to rise 2 percent and on cargo by 3.1 percent, after both fell 14 percent in 2009.

But airlines may be suffering a structural shift in premium travel, with the number of passengers paying for first and business class tickets recovering at a slower rate than economy travel, IATA said.

Performance varies strongly across regions, with Asia and Latin America driving the recovery, but North Atlantic and European markets remaining weak, IATA said.

IATA said airlines are now halfway to recovery, with revenues forecast at $522 billion this year -- $42 billion below their 2008 peak and $43 billion above the 2009 trough.

But it will take airlines 2-3 years to make up the losses from the crisis, Bisignani said.

Bisignani said airlines had absorbed losses of $50 billion over the past 10 years, and still faced a series of risks, ranging from economic developments to environmental pressures.

With airlines taking delivery of another 1,400 aircraft this year, there are risks to capacity usage, he noted.

Another uncertainty is the price of fuel. IATA forecasts the price of oil will average $79 a barrel this year, an increase of $17 over 2009, driving fuel as a proportion of operating costs to 26 percent from 24 percent.

(Editing by Mike Nesbit)