Stiff competition from rivals in Europe and the Middle East and falling ticket prices mean Lufthansa must keep cutting costs if it wants to remain a global airline, the German carrier said.

Lufthansa is being squeezed by competition from budget carriers on routes within Europe and rivals such as Emirates and Turkish airlines on long flights.

Profits fell almost 11 per cent last year to €252 million ($266 million) at its core German airlines division, made up of the Lufthansa and Germanwings brands, it said on Thursday.

Moves to change costly wage deals and expand budget flights have met with stiff resistance from pilots who staged 10 strikes last year and have threatened more. The strikes, and others by security staff, cost Lufthansa €232 million in 2014.

"We are not afraid of conflict because we know we're acting in the long-term interests of our company," chief executive Carsten Spohr said.

IAG, the parent company of British Airways and Iberia, cut costs and developed low-cost operations ahead of its continental rivals. It raised its 2015 profit forecast last month.

To lower costs, Lufthansa is expanding its Eurowings regional subsidiary, where crew are not on the same collective labour agreements as those at Lufthansa and Germanwings.

Spohr repeated that Lufthansa's main brands will only grow if they get concessions from staff.

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Shares in Lufthansa dropped nearly three percent after the results release, reversing earlier gains.

Analysts highlighted the pressure on ticket prices and said the company was not benefiting from lower oil prices as much as initially expected, due to a strong dollar.

Lufthansa now forecasts a 2015 fuel bill of €6 billion, down from €6.8 billion in 2014 but higher than an estimate of €5.8 billion in January.

The airline said yields, a measure of pricing which fell 3.1 per cent last year, would fall significantly in 2015.

Lufthansa forecast an increase in adjusted earnings before interest and tax (EBIT) to more than €1.5 billion from €1.2 billion in 2014. That forecast does not include the cost of any further strikes this year.

It said it would invest €2.9 billion in 2015, as it takes delivery of new planes. Lufthansa will then limit annual spending to €2.5 billion in 2016 and 2017 to ensure it can service its debt, which doubled to €3.4 billion in 2014.

The lower oil price means it can restrict investment in new planes and keep older planes flying for longer, Spohr said. - Reuters