By Conor Humphries DUBLIN (Reuters) - Ryanair (I:RYA) hiked its annual profit forecast almost 20 percent on Monday on a surge in winter bookings and said it would slash fares by up to 10 percent in the new year to steal more market share from struggling higher-cost rivals.
The improved guidance comes after Europe's largest low-cost carrier introduced a series of customer service improvements and offered a new business fare with free checked-in baggage and the ability to make flight changes.
It now predicts profit after tax for the year to March at between 750 million euros and 770 million euros, up from a previous forecast of 620 million to 650 million euros and well ahead of an average forecast of 694 million euros in a company poll of analysts.
"We've had a bumper half year and we've had to boost our guidance as we got visibility on the second half of the year," Chief Executive Michael O'Leary said in an interview.
"We are keeping prices low while improving the service. Its as simple as that."
Higher-cost rivals Lufthansa (DE:LHAG) and Air France (PA:AIRF) have both lowered their profit forecasts in recent days on higher competition and the cost of industrial action.
The sale of 2 million more tickets than planned over the winter will consolidate the Irish airline's position as Europe's largest airline by passenger numbers - boosting annual numbers to an estimated 89 million, up 8.5 percent over the previous year.
"The market was looking for a revision, but this is pushing it to the upper end of expectations," said Mark Simpson, an analyst with Irish brokerage Goodbody.
"They are using the strength of the first half to really grab market share in the second half."
Ryanair plans to boost its market share by cutting fares by up to 5 percent in the three months to December and by up to 10 percent in the first three months of next year.
Profit after tax for the six months to September, the first half of Ryanair's financial year, was 795 million euros, just below an average forecast of 799 million euros in a company poll.
Traffic grew 4 percent in the first half and average fares were up 5 percent.
The airline said it had attempted to lock in recent falls in the price of oil, hedging 90 percent of its fuel needs for the year to March 2016 at around $93 per barrel and would try to extend that further in the coming months.
Before Monday's results, Ryanair's share price was up almost 25 percent in the past year compared to an increase of just 3.4 percent in the Thomson Reuters Europe Airlines Index .
(Reporting by Conor Humphries; Editing by Edwina Gibbs)