Europe’s biggest airline, Lufthansa, has reported a bigger-than-expected profit for 2010, on the back of resurgent long-haul traffic and a cost-cutting programme.

The German carrier recorded a net profit of €1.1bn, up from a loss of €34m in 2009, and twice analyst expectations.

It warned that 2011 is expected to be a tough year due to high fuel prices and a new German air-traffic tax, although it still expected its revenues and earnings to “develop positively” this year and next year.

Chairman and CEO Christoph Franz said: “We can be highly satisfied with this result; it shows that we have learned from the crises of the past.

But looking ahead, he added: “2011 will not be a walk in the park. The headwinds of competition are becoming rougher on the European routes and long-haul routes to Asia and the Americas. The German air traffic tax hits the German and European airlines, as well as their passengers, where it hurts.

“The fuel prices are at record levels. And we are not immune to the consequences of political unrest, terrorist attacks and natural disasters.”

The airline also announced plans to pay a dividend for 2010 of €0.6 per share, which was also bigger than expected.

The figures were boosted by a strong recovery in the second half of the year, following a loss in the first half due to the volcanic ash cloud in Iceland and a pilots’ strike.

Lufthansa is still in the process of integrating two recent acquisitions - Austrian Airlines and UK carrier BMI.

It also has plans for a joint venture with All Nippon Airways, but has now warned that last week’s earthquake and tsunami in Japan may delay the tie-up.

Lufthansa itself achieved an operating profit of €382 million, compared to a loss of €107 million in 2009.

Bmi, Lufthansa’s fully-owned subsidiary, recorded an operating loss of €145 million and Austrian Airlines €66 million.