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Cost-control efforts helped Lufthansa, Europe’s biggest legacy airline group by revenues, to beat analysts’ expectations and record a better-than-expected net profit for 2016.

Profits rose 4.6 per cent to €1.78bn, despite a 1.3 per cent decline in revenues to €31.7bn.

The group, which includes Austrian Airlines, Swiss, Brussels Airlines and Eurowings as well as the core German flag-carrier, recorded the improved results despite a Europe-wide glut in airline capacity.

The figures were published on Thursday, a day after Lufthansa announced a settlement with its pilots over a long-running pay dispute that cost the group €100m during 2016.

However, the group warned that adjusted earnings before interest and tax for 2017 – a measure that excludes the effect of some changes in pension accounting – would be “slightly below” the €1.75bn figure for 2016.

Carsten Spohr, chief executive, said the group was in a stronger position than a year ago.

In a very demanding market environment, we successfully kept the Lufthansa Group’s margins at their record prior-year levels, through consistent capacity and steering measures and, above all, through our effective cost reductions.

Like other European airline groups, Lufthansa is grappling with the effects of continued, industry-wide growth in capacity that is outstripping demand growth. The phenomenon is driving down fares – Lufthansa’s revenue per available seat kilometre, a key metric, declined to 7.8 euro cents, from 8.3 in 2015.

The year’s performance was driven by the core passenger airline group, where adjusted Ebit grew 1.5 per cent to €1.53bn, on revenue down 2.5 per cent to €23.9bn. However, the group recorded an adjusted Ebit loss of €50m on revenue down 11 per cent to €2.08bn in logistics, where the group continues to suffer from a glut in air cargo capacity and lacklustre traffic growth.

The group said it expected to cut costs excluding fuel during 2017 at the same rate as during 2016 but that it expected rising oil costs to push up its annual fuel bill by €350m. It forecast organic capacity growth of 4.5 per cent and that the airline would benefit from the integration of Brussels Airlines from the start of this year. The airline also expected to record a net benefit from a deal arranged during 2016 to lease many of the aircraft of Air Berlin, the struggling German airline.

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