Ryanair lifted its full-year profit forecast on Monday as strong demand in northern Europe lifted average fares dramatically in the last three months of 2012.

Dublin-based Ryanair, Europe's top low-cost airline, which has used its size and low costs to undercut struggling flag carriers, raised its profit forecast to €540m (£460m) for the year to March, up from an earlier €490-520m range.

"We saw strong demand out of the UK, out of Germany and out of Scandinavia and that has gone straight to our bottom line," the chief operating officer, Michael Cawley, told Reuters.

Strong demand in the runup to Christmas and a high uptake of reserved seating options helped to lift ticket prices in northern Europe well above the company's forecasts, he said.

Sales were not as buoyant in southern Europe, with Spain in particular "very weak", and fare growth in Italy flat, he said.

An 8% rise in average fares lifted the airline to a profit of €18m in the traditionally weak three months to December, compared with an average forecast by five analysts polled by Reuters of a €5m loss.

Fare growth compared with 5% in the six months to September and was way ahead of the 3% average forecast by three analysts polled by Reuters.

Average fares will grow at a slower pace in the three months to March, however, Cawley said.

Ryanair has been able to sweep up customers as traditional rivals cut back capacity in the face of slow economic growth in Europe and high fuel costs.

Revenues climbed 15% to €969m in the quarter, better than the 9.2% revenue growth its chief low cost rival, easyJet, reported last week.

"Demand is exceeding supply in the short-haul market and Ryanair is capitalising on it," said Davy stockbrokers analyst Stephen Furlong. "The market will be very happy with these numbers."

Higher fares helped Ryanair absorb a 24% rise in fuel costs compared with the same quarter last year. Fuel cost inflation is expected to ease to 5% in the year to March 2014 from 14% in the current financial year.

Ryanair also said it remained confident European Union antitrust regulators would approve its bid for Irish rival Aer Lingus by March.