Montreal-based Air Canada narrowed its losses in the first quarter as business travel picked up, the airline reported Thursday.

Canada's largest airline lost $85 million in the seasonally weak first quarter ended March 31. That compared with a net loss of $400 million a year ago.

Air Canada says premium cabin revenues grew by $58 million, or 15 per cent, in the first quarter over the same period last year. (CBC)

It said premium cabin revenues grew by $58 million, or 15 per cent, from last year, driven by a 10.6 per cent increase in traffic.

That accounted for almost 70 per cent of the $84 million increase in passenger revenues, which rose to nearly $2.1 billion.

While an improving economy allowed Air Canada to increase its premium cabin prices by 3.9 per cent, lower prices for economy seats reduced overall pricing by 2.2 per cent from the same period a year earlier.

"This is a positive indicator that business travel demand is slowly starting to return," CEO Calin Rovinescu told analysts during a conference call.

The loss per share narrowed to 31 cents in the first quarter from $4 last year, easily surpassing analyst estimates of a net loss of 81 cents a share for the latest period.

In another development, Air Canada says it expects to lose about $20 million in operating profits from flight cancellations after the closure of European airspace for five days in April because of ash from the volcanic eruption in Iceland.

Air Canada shares closed down 16 cents at $2.04 Thursday on the Toronto Stock Exchange.

With files from The Canadian Press