UPDATE 1-March business travel down most since 2003 -IATA

(Adds details on Middle East travel in 10th paragraph)

By Mark McSherry

NEW YORK, May 28 (Reuters) - The number of international airline passengers traveling first class and business class in March declined the most since 2003, according to a trade group for international airlines.

The International Air Transport Association (IATA) said the decline reflected a sharp slowdown in financial sector activity and a weakening U.S. economy.

The loss of these high-paying fares is a blow to airlines already battling high fuel prices.

"Airline executives get concerned when they start to see falling traffic in the front of the plane because it's the premium passengers that represent valuable revenue," said IATA spokesman Steve Lott.

"Whether they are flying less or flying in coach, those are both worrying signs for airline managers," Lott added.

IATA said in a report that global first class and business class traffic in March fell 3.9 percent from the same month last year, the biggest monthly decline since 2003.

Within North America, such "premium" traffic for IATA airlines was down 8.5 percent in March from a year earlier and down 5.2 percent for the year through March from the same period last year.

Within Europe, first class and business class traffic for IATA airlines was down 17.1 percent in March and down 10.7 percent for the year through March.

But air travel markets in the Middle East, Far East and Africa showed much stronger premium traffic.

Year-to-date first class and business class traffic was up 18.5 percent between Africa and the Middle East, up 7.9 percent between Europe and the Middle East, and up 16.8 percent between the Middle East and the Far East.

AIRLINE WOES

The decline in March business travel was exaggerated by this year's early Easter, but even after adjusting for this, global first and business class traffic in March fell by between 1 percent and 2 percent, the IATA said.

"Given the importance of premium passengers for airline profitability, the absolute decline in numbers is bad news, particularly since the price of jet fuel rose 70 percent over the year to March," said the IATA report.

Sky-high fuel prices and a weakening U.S. economy have stalled the U.S. airline industry's modest recovery from the 2001-2006 downturn.