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* Lufthansa 2015 EBIT meets expectations
* Restores dividend with proposed payout of 0.50 eur/share
* Sees slight increase in profit in 2016
* Budget rivals pressure prices in Europe
* Shares drop 4 percent in early trade, biggest Dax faller (Adds shares, detail on profit outlook, analyst)
By Victoria Bryan
FRANKFURT, March 17 (Reuters) - German airline groupLufthansa forecast only slightly higher profits in2016, despite lower fuel prices, warning of cut-pricecompetition and falling average fares as it ramps up itsEurowings budget business.
Like rivals Air France-KLM and British Airwaysowner IAG, Lufthansa benefited from low oil prices andstrong travel demand in 2015, enabling it on Thursday to restoredividend payments to shareholders.
However, low cost rivals such as Ryanair and easyJet have also benefited and are challenging Lufthansa's newbudget operation, Eurowings, adding more seats in Europe andespecially Germany and putting pressure on ticket prices.
Lufthansa forecast a significant decline this year inyields, a key industry measure of revenues per mile perpassenger, due also to the expansion of Eurowings on long-haulroutes. Chief Financial Officer Simone Menne told journalistsshe could not see yields in Europe improving any time soon.
Lufthansa said it expected a slight increase in profit for2016 after reporting adjusted earnings before interest and taxof 1.82 billion euros ($2.05 billion) for 2015.
Before Thursday's update, analysts had on average predictedan increase in profit to 2.08 billion euros, and the carrier'sshares dropped 4 percent in early trading.
The group is still struggling to reach agreement with staffon new pay and pension deals, with last year seeing both pilotand cabin crew strikes, costing the carrier 231 million euros inlost earnings in 2015.
"We remain concerned the group is struggling to deal withmultiple strategic challenges, with cheaper fuel masking theproblems in the short term," Liberum analyst Gerald Khoo, whohas a "sell" rating on the stock, wrote in a note.
CFO Menne told analysts the group was reluctant to give amore ambitious forecast so early in the year.
Alongside a 1 billion euro drop in its fuel bill for 2016,Lufthansa said it would lower costs, after its unit costs,excluding fuel and currency effects, rose 2.4 percent in 2015.
Attacks on popular tourist destinations, from Paris toTunisia and Turkey, have also knocked traveller confidence atthe start of the year.
Menne said people were still travelling, albeit bookingtickets later.
"We see caution on forward bookings, but we aren't seeingfewer passengers. It's a change in booking trends," she said.
($1 = 0.8870 euros) (Reporting by Victoria Bryan; Editing by Maria Sheahan and MarkPotter)
