Lufthansa Group's adjusted EBIT declined 3.6% to €1.75 billion ($1.88 billion) in 2016, as revenue shrank 1.2% to €31.7 billion.
The airline group says the reduced earnings reflect a €100 million impact from industrial action by pilots in November, and that it improved its cost efficiency.
Chief executive Carsten Spohr states: "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."
Adjusted EBIT margin declined 0.2 percentage points to 5.5%. Unit costs excluding fuel and currency effects were reduced 2.5%, the group says.
Without the adjustment, EBIT increased 36% to €2.28 billion. "The agreed switch from a defined-benefit to a defined-contribution pension system had a €652 million positive impact on EBIT for the year, which is not included in the adjusted EBIT," Lufthansa notes.
It adds that investments were 13% lower at €2.24 billion – some €300 million less than previously planned – "owing largely to delays in new aircraft deliveries".
Adjusted EBIT at Lufthansa's passenger airline group grew to €1.5 billion, with Lufthansa mainline's result increasing €254 million to €1.14 billion.
Austrian Airlines' adjusted EBIT grew €6 million to €58 million, while Swiss's declined €15 million to €414 million.
Budget unit Eurowings made a €91 million loss, after a positive figure of €38 million in 2015. The group says: "More than half of the shortcomings can be attributed to start-up costs and other nonrecurring expenditures."
Lufthansa Cargo swung to a €50 million loss – following a €74 million adjusted EBIT the previous year – amid "significant pricing declines... in the face of massive overcapacities".
For 2017, the group expects adjusted EBIT to decline "slightly".
Unit costs at the passenger airlines – excluding fuel and currency effects – are set to be reduced at "roughly the same level as in 2016". But Lufthansa warns that the €350 million rise in the group's fuel bill and the reduced unit revenues it expects are "unlikely to be fully offset through further unit-cost reductions".