* Full-year profit down 8 pct at 523 mln euros
* Average fares set to rise 6 pct over summer, fall up to 8pct in winter
* Delivery of new planes to give airline more seats to sell
* Shares climb 10 percent (Adds Breakingviews link)
By Conor Humphries
DUBLIN, May 19 (Reuters) - European low-cost airline Ryanair reported its first fall in profits in five years onMonday, blaming tougher competition, but said prospects ofstrong demand this summer would help lift profits by up to 20percent in the coming year.
The Irish airline earned 523 million euros ($717 million)after tax in the year ended March 31, a fall of 8 percent on theprevious year but investors were relieved the result was betterthan the airline had predicted and the shares rose 10 percentafter it said this year's profit could climb to 620 millioneuros.
Rivals said last year's first profit warnings by Ryanair ina decade were the result of it being forced to cut ticket pricesafter losing business to competitors seen as being more friendlyto customers.
In response Chief Executive Michael O'Leary in Septembercalled an end to decades of famously austere service, addingseat allocations, easing restrictions on hand luggage andcutting penalty charges such as for failing to print out onlineboarding passes.
With forward bookings for the summer 5 percent ahead of lastyear, the strategy appears to be working, O'Leary told a results conference call on Monday.
"While disappointing that profits fell 8 percent ... wereacted quickly to this weaker environment last September bylowering fares and improving our customer experience," O'Learysaid.
"We expect this combination of a strong first half but aweaker second half will generate a significant rise in after-taxprofits", he said.
SHARES UP
Ryanair shares were up 10 percent at 6.98 euros by 1249 GMT,though that was still 10 percent below their all-time high of7.82 euros, hit before last year's two successive profitwarnings.
Ryanair had predicted its after-tax profit for last yearwould be between 500 and 520 million euros, while analysts hadon average expected the result to be around 515 million eurosaccording to a company poll of more than 20 analysts.
"The bottom line is Ryanair are telling us the summerrevenue performance is going to be very strong," said StephenFurlong, an analyst with Davy Stockbrokers in Dublin, whichincreased its price target to 8 euros from 7.50.
Investors did not appear to be very concerned about thepossibility of fares weakening year on year in the winter asthere was currently no information on bookings, Furlong said.
O'Leary said profit in the current year should be between580 million and 620 million euros, an increase of between 11 and19 percent.
That was below the average of 634 million given in theRyanair poll but many analysts see Ryanair as being routinelycautious in its forecasts.
Ryanair expects average fares to increase 6 percent in thekey summer months compared with the same period a year earlier.Rival easyJet last week forecast growth in revenue perseat yields "in the low single digits" for the same period.
But Ryanair's average fares are expected to then fall bybetween 6 percent and 8 percent in the six months to March asthe first of 180 new Boeing jets are delivered, Chief FinancialOfficer Howard Millar said.
Millar said the airline would like to take five or six extrajets next summer, but that it appeared unlikely that Boeingwould have the spare capacity.
The airline expects passenger numbers to increase 4 percentto 84.6 million in the current year, consolidating its positionas Europe's largest airline by passenger numbers.
The percentage of seats left empty on flights should fall byabout 2 percentage points per year over the next three yearsfrom its current level of 17 percent, O'Leary said. (Editing by Greg Mahlich)
easyJet (EZJ)