By Tim Hepher and Anthony Deutsch

PARIS/AMSTERDAM (Reuters) -An easing of coronavirus travel restrictions is generating the first signs of recovery at Air France-KLM, the airline group said on Friday, as its unveiled a smaller loss for the second quarter coupled with positive cash from operations.

While passengers are returning to the air, uncertainty over COVID-19 rules continues to be a problem. KLM said with a majority of Europeans now fully vaccinated, countries should move quickly to harmonize regulations enabling more air travel.

“Obviously the first quarter was terrible and probably even more so for KLM due to the very specific measure of double testing,” Pieter Elbers, head of the group’s Dutch unit, said in an interview, referring to a requirement in the Netherlands for passengers to provide two negative tests on return flights.

“In the second (quarter) we see a significant improvement. We see the numbers picking up even within the second quarter, June was better than April and in July, the first week of July, Amsterdam was the busiest airport in Europe,” he told Reuters.

But Elbers said people are still reluctant to travel and called for European countries to reopen the borders.

The Franco-Dutch group posted losses before interest, tax, depreciation and amortisation (EBITDA) of 248 million euros ($294.57 million) for the quarter – marking a 532-million-euro improvement from heavy losses a year earlier when the pandemic had triggered global lockdowns.

Third-quarter EBITDA is expected to be positive, it said, adding its medium-term operating margin goal remained unchanged.

Air France-KLM shares rose less than 1% in early trading.

With long-haul capacity rising again following the reopening of the North Atlantic to Americans visiting Europe, Air France-KLM now expects capacity at 60%-70% of 2019 levels in the third quarter, compared with 55%-65% estimated in May.

In contrast, British Airways-owner IAG took a more cautious bet, saying summer capacity would rise to 45% of pre-pandemic levels.

With U.S.-bound travel still closed to the majority of Europeans, Air France-KLM, however, held back from giving capacity forecasts for the fourth quarter and called for reciprocity in the opening of borders as well as faster vaccination rollouts worldwide.

While Americans are slowly returning to Europe, Elbers said, “I hope that also the U.S. will open its borders soon again and we can see a further uptick of travel. If I see the trend of the past few months, we can really be kind of positive.”

For the first time since the start of the crisis, operating free cashflow after lease repayments was positive at 210 million euros. Both of its main carriers were cash-positive on the back of rising ticket sales.

The group sees “good” summer bookings in Europe, though they are coming in later than usual, Chief Financial Officer Steven Zaat said.

The airline’s revenue surged to 2.75 billion euros from 1.57 billion euros.

Fuel costs rose by about 300 million euros, mainly due to the extra capacity as well as a slight impact from rises in oil prices, cushioned by more favourable hedge contracts.

($1 = 0.8419 euros)

(Reporting by Tim Hepher and Anthony Deutsch; Editing by Sudip Kar-Gupta and Anil D’Silva)

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