Feb. 5 (Bloomberg) -- Ryanair Holdings Plc, Europe's biggest discount carrier, raised its full-year earnings forecast after third-quarter profit unexpectedly increased 30 percent on higher fares and baggage charges.

Net income rose to 47.7 million euros ($61.7 million), or 6.12 cents a share, for the three months ended Dec. 31 from 36.8 million euros, or 4.76 cents, a year earlier, the Dublin-based company said today in a statement. The figure was more than double the 21 million-euro median estimate of analysts surveyed by Bloomberg.

The airline's stock rose the most in two years after Chief Executive Officer Michael O'Leary predicted full-year profit of 390 million euros, compared with an earlier forecast of 350 million euros. The introduction of baggage fees, which passengers must pay to check in luggage, helped offset higher third-quarter fuel costs.

``Ryanair always surprises and they've surprised again,'' said Howard Wheeldon, an analyst at BGC Partners LP. ``People seem to have adapted to the baggage charge and more of them are taking advantage of the ability to use an airplane like a bus.''

The shares surged 76 cents, or 6.8 percent, to a record 11.98 euros in Dublin. The stock has gained 56 percent over the last 12 months, giving the company a market value of 9.2 billion euros.

In the next fiscal-year there will be ``significant upside for us and I think for a lot of other airlines in terms of lower fuel costs,'' Chief Executive Officer Michael O'Leary said in a conference call with analysts. ``I think there might be a pleasant surprise on the upside rather than the downside.''

Passenger Traffic

The airline, based on the low-cost model pioneered by Southwest Airlines Co. in the U.S., flew 10.25 million passengers in the quarter, up 19 percent from a year earlier. Revenue jumped 33 percent to 493 million euros.

The load factor, or proportion of seats filled, averaged 82 percent in the period compared with 84 percent a year earlier. Average fares, including baggage fees, increased 7 percent. Ryanair fares have gone up or remained the same for the past nine quarters.

The company began charging customers to check in baggage last March. The move was designed to encourage travelers to fly with fewer checked bags and reduce handling costs, according to Ryanair.

The airline is aiming for between 60 and 70 percent of its passengers to carry hand-luggage only and will probably increase the baggage fees sometime in the future, O'Leary said. ``People who cost us less should pay us less,'' said Deputy Chief Executive Officer Michael Cawley at a press briefing in London today.

Baggage Charge

Passengers now pay between 4.5 euros and 10 euros for each checked item depending on when and how they make the payment. According to Crawley less than 50 percent of Ryanair's passengers check baggage.

The airline carried 3.1 million passengers last month, an increase of 23 percent from the year earlier. The load factor fell 3 points to 71 percent. For the rolling 12-month period to Jan. 31, Ryanair flew 41.1 million passengers. The load factor was 83 percent for the period, the company said in a separate statement.

Operating expenses increased 35 percent in the third-quarter. Higher fuel costs cut into profit after the price of oil spiked in the summer, shortly before the airline hedged its fuel needs for the quarter. The airline spent 174.9 million euros on fuel in the period, 52 percent more than a year earlier.

``Unfortunately they hedged at a high price just before the fuel price started to go down,'' said Geoff van Klaveren, an analyst at Exane BNP Paribas with a `neutral' rating on the stock, before the results. ``The market will overlook that because it's a fairly short-term'' factor.

Fuel Hedging

Ryanair is now 90 percent hedged through March at $73 a barrel. ``We took advantage of the recent oil price weakness to extend our hedging position,'' the company said.

It is 50 percent hedged for the first half of the next fiscal- year at $61 a barrel and 90 percent hedged in the second half at $65, Cawley said. The airline expects the positions will save it 60 million euros in fuel costs.

Ryanair says it's the only airline in Europe that doesn't have a fuel surcharge. Fuel surcharges allow airlines to offset higher oil prices by passing the cost on to customers.

The company's cash position increased by 47 million euros to 2.02 billion euros, despite acquiring a 25.2 percent stake in Ireland's Aer Lingus Group Plc for 342 million euros. Ryanair's hostile bid for its Irish rival has been referred to a Phase 2 competition review by the European Commission.

Overtaking Lufthansa

The carrier, which started in 1985 with one 15-seat plane, aims to fly 42 million people in the financial year ending March 31 and more than 52.5 million in the next. That increase could lead it to overtake Deutsche Lufthansa AG, Europe's second-largest airline, in terms of passengers carried.

The company will announce a new base later this week, Cawley said at the press briefing. The base, which will be its nineteenth, is at an existing airport and is expected to double traffic at that location.

British Airways Plc, the U.K.'s largest airline, cut its full- year sales forecast because of a threatened flight attendants strike last week. The carrier posted a 12 percent drop in third- quarter profit after terror alerts and weather disruptions at London airports.

To contact the reporter on this story: Tracy Alloway in London at talloway@bloomberg.net

Last Updated: February 5, 2007 11:57 EST