Lufthansa Thursday said operating profits will rise this year due to higher demand and prices for passenger and freight traffic as well as continued cost cutting and synergies from airlines it has acquired.”Overall, the momentum behind the performance of our business in recent months has further increased our confidence to reach our profitability targets,” Lufthansa said. Chief Financial Officer Stephan Gemkow said that the airline’s mid-term outlook has also improved.

The German flagship airline said that its 2010 operating profit will likely rise “in line with current market expectations” after reporting second quarter results that beat market views, driven by the recovery in demand and prices for passenger and cargo traffic. The results and outlook come despite higher costs for fuel, strikes and bad weather that burdened first-quarter earnings, and lost revenue due to the volcanic ash cloud that grounded much of European air traffic for nearly a week in April.

Lufthansa’s comments echo those of other European carriers, which have reported a pickup in passenger numbers, cargo volumes and passenger spending in recent weeks following a sharp downturn in the industry due to the financial crisis and resulting economic slump.

“We feel comfortable with analyst forecasts [for our 2010 operating profit],” Gemkow said.

LBBW analyst Per-Ola Hellgren said that Lufthansa “effectively raised the guidance for its operating result in 2010…which we interpret to mean some range around EUR400 million. This is significantly higher the EUR198 million we projected until now.”

A Dow Jones Newswires’ consensus compiled in a poll of 11 analysts forecasts EUR403 million for Lufthansa’s 2010 operating profit.

Despite the positive full-year outlook, Lufthansa fell early Thursday and at 1059 GMT, the shares were down EUR0.41, or 3.2%, at EUR12.38, underperforming a firmer broader market.

The air carrier said that it is experiencing “positive demand trends, above all in the freight and intercontinental passenger businesses,” echoing comments from rival Air France-KLM (AF.FR) Wednesday, which also reported better-than-expected results.

“There is a noticeable recovery in First and Business Class bookings in the passenger business and the revenue from long-haul traffic,” said Gemkow.

He added that average passenger revenue in all traffic regions but Europe increased in the first half of 2010. Passenger revenue on lucrative long-haul routes, such as flights to  Asia and America regions, are back a pre-crisis level, he said.

The company reported that second quarter net profit soared to EUR194 million, from EUR89 million in the prior-year period and well above analysts’ forecasts as revenues jumped 32.7% to EUR6.9 billion. The profit figure was boosted by a EUR94 million capital gain related to the transfer of 8.5% of Lufthansa’s shares in German airport operator Fraport AG (FRA.XE) into a trust to meet pension obligations.

The profit helped mitigate some of the losses Lufthansa posted in the first quarter. It loss for the first six months of the year was EUR104 million, compared with a loss of EUR178 million in the same period last year.

The gradual recovery in demand and continued cost cutting meant its main passenger operation, Lufthansa Passenger Airline, posted an operating profit after losses in both the fourth quarter of 2009 and the first quarter of 2010. Its Swiss airline also posted an operating profit, although recently acquired airlines like Austrian Airlines (AUA-VI) and British Midland Airways, or bmi, as well as budget carrier Germanwings, generated operating losses in the second quarter.

Gemkow said that Austrian Airlines is expected to break even in 2011 and bmi in 2012.

Strong demand for air freight services also helped Lufthansa’s logistics unit, Lufthansa Cargo, to record an operating profit in the second quarter and the “best first-half result in its history”, according to CFO Gemkow.