LONDON (Reuters) - Lufthansa and Air France-KLM's results on Thursday showed signs the airlines were on the road to recovery, with strong demand and a brighter outlook for 2025 helping send their shares to the highest levels in years.

Strong passenger numbers and lower fuel costs helped the airlines beat analyst expectations in the fourth quarter, after both suffered from spiralling labour and maintenance costs earlier in the year.

At 1049 GMT, Lufthansa shares were up more than 7% while Air France-KLM shares were up more than 19%.

"Looking back, 2024 was a year of two halves for the Lufthansa Group. In the first six months, we still had to cope with a significant decline in operating profit," Chief Executive Carsten Spohr said in a statement. 

European airlines struggled last year as inflation and maintenance of ageing fleets drove costs higher despite sustained strong demand, with shares dropping for most of the main carriers on the continent.

Only British Airways-owner IAG saw its shares rally throughout the year as it benefited from robust transatlantic connections.

Analysts pointed to higher revenues and lower depreciation as helping Air France-KLM in particular.

Air France-KLM said a drop in arrivals during the Paris Olympics and new labour contracts had hit their results hard, in a series of unfortunate one-off events that dragged on 2024.

Now, with demand expected to continue growing into 2025 coupled with new jet deliveries, both groups were hopeful they would be able to maximize their revenues and take advantage of expected lower fuel costs.

STILL WORK TO DO

Both airline groups have core carriers still in need of a revamp. Dutch KLM on Thursday deemed its own annual performance "disappointing" and warned cost pressures continued as it prepared to shave off 250 non-operational jobs.

For Lufthansa, the namesake airline slipped into the red in 2024 with an operating loss of 94 million euros ($101 million), and is now embarking on a recovery plan.

Promising a "year of transition" in 2025, the group said Lufthansa Airlines was expected to make a gross profit contribution of around 2.5 billion euros by 2028.

Air France-KLM pointed to hopes for renewed spending in Paris, particular among Americans, as well as strong results for its budget carrier Transavia.

"There are a few American television shows which make Paris look extremely attractive...So from a revenue perspective, we're optimistic that Paris is probably the most attractive destination in all of Europe," Air France-KLM CEO Ben Smith told analysts.

And Lufthansa said it plans to build out more capacity for its City Airlines and Discover carriers, offering short-haul flights around Europe.

($1 = 0.9271 euros)