While most U.S. airlines have already dumped First Class, those in Europe are navigating through the economic slump by adopting a dual brand strategy - one appealing to the frugal mood and another that screams glamour and luxury.

"In Europe, first-class cabins are there for pure prestige. With a lot of low-cost airlines popping up, the major European airlines have to showcase their luxury brand," says Alexandra Collins, owner of aircraft interiors design firm Design Investment, whose clients include Air France and Airbus.

Lufthansa is shutting down its European short-haul operations this year, excluding those in and out of hubs Munich and Frankfurt, and bundling them in discount brand Germanwings in its attempt to find an answer to the challenge from low-cost rivals such as Ryanair and easyJet.

Air France-KLM is increasing its use of Transavia and British Airways parent IAG plans to convert most of Iberia's short-haul operation to low cost arm Iberia Express.

The dual brand strategy also explains a scaling up of business class which now offer amenities First had a decade ago - such as flatbed seats - a cheaper option for corporate clients who can head straight to a business meeting without spending a few hours of freshening up at a hotel.

Premium cabins - First and Business - contribute a little more than 50 percent of passenger revenues at Lufthansa and BA, while Air France-KLM is keen to boost its exposure from just under 50 percent.

Global leader in airline overhaul Lufthansa Technik whose January to September 2012 operating profit rose 15 percent, says retrofitting premium cabins is now a growing business. "It used to be that airlines were reconfiguring their premium cabins every say eight to 10 years. Now it's around four to five years," Technik spokesman Wolfgang Reinert explained.

The airlines want the latest trend - be it the most sumptuous bedding, the longest flat bed, high-resolution TV screens, fast internet connection and telephone on board - with features oozing opulence and exclusivity, such as private suites, mini-bars, free flowing vintage wines, in-air showers and noise-absorbing curtains that mask the sound of the cappuccino maker somewhere behind your seat.

REFUGE OF THE WELL-HEELED

But it is on the ground where passengers can best experience being in the sanctuary of the high and mighty: Spas, day beds, bathrooms with the fluffiest towels, branded amenity kits, a personal assistant and a limousine.

Air France will invest "several hundreds of million euros" in the next two years to renew its First and Business cabins and lounges, and "re-assert" its ambition to make first class a benchmark of "comfort, service and in-flight dining," a spokeswoman says.

British Airways is splurging over 5 billion pounds in the next five years not just for new aircraft but also for more elegant lounges and new technologies.

"Basically it's bringing back the magic of flying... what we hope with the new First Class is just to bring back some of the glamour of the golden age of flying to make people feel really special," spokesman Michael Johnson said.

Lufthansa is investing 3 billion euros by the end of 2014 for its product, including First and Business, and has plunked 42 million euros on five Frankfurt lounges, all open, including its biggest First Class terminal worldwide to cope with the heavy inflow of travellers from Asia and Latin America.

"The share of private individuals paying for first class is rising compared with the number of business travellers. We see certain shifts especially in the emerging countries," says Lufthansa spokesman Klaus Gorny.

Lufthansa is also in the midst of refurbishing its fleet of 30 Boeing 747-400s, with special emphasis on its first-class seats, the configuration of which was halved to eight so that passengers can have both a bed and a seat.

With major European airlines upping the ante on first class, believing the economic recovery will see payback time, a few outside the region are having a re-think, raising issues on pricing strategy.

"Often you find first-class flights are empty and you'd find passengers there who are upgrades from business class. That's why a few airlines are asking why are we investing mainly to offer business class better first-class seats. The same for lounges," Collins said.

Thierry Antinori, a board member at Emirates - which has showers at 39,000 feet - told a German paper in December that the airline was unhappy with load factors in First Class and was considering whether to stop offering First Class on some long-haul routes.

"We are currently looking at how we can fit out some A380s with only two classes," he said.

Qantas has scrapped most of its first-class seats but Singapore Airlines and Cathay are among holdovers.

Amy Lucas, spokeswoman of UK travel retailer Flight Centre, said: "In the last year, we have seen discounted first-class rates - predominantly with Middle Eastern airlines - that are closer to business-class fares."

At around 10,000 euros, First's official price between Frankfurt and Tokyo can buy a small car, and travel experts say airlines tend not to negotiate first-class prices.

"However, what we've seen... is that we've managed to negotiate with a carrier so that when a client has purchased the most expensive business seat, they'd be automatically upgraded to first class," says Vincent Lebunetel, EMEA head of Carlson Wagonlit's Solutions Group.

(Editing by Peter Myers)

• A Permanent Economic Emergency