UPDATE 2-Vueling outlooks provides hope to gloomy airlines

* Sees first-ever full-year operating profit

* Expects higher revenue, lower costs in Q2

* Q1 EBIT loss narrows to 9 million euros

* Shares up 2.7 percent

(Adds detail throughout, conference call)

MADRID, April 23 (Reuters) - Spanish carrier Vueling (VULG.MC) brightened the airline sector when predicting a full-year profit, as it announced a narrower first-quarter loss after cutting routes and squeezing extra cash from fliers.

Vueling reported first-quarter earnings before interest and tax (EBIT) of 9 million euros ($11.6 million) and said on Thursday it expected revenue to rise and costs to fall sharply in the second quarter.

In 2008, its first-quarter loss was 32.2 million euros.

Passenger traffic to all Spanish airports sank 19 percent in the first quarter, weighing on fares and plunging national flag carrier Iberia (IBLA.MC) into a major loss, according to union officials on Thursday. [ID:nnLN680194]

Yet despite headwinds, Vueling said its strategic plan that has cut 15 unprofitable routes, seven planes and boosted income on extras like baggage charges, would lead it to the five-year-old airline's first-ever full-year operating profit.

"We maintain our forecast to reach an operating profit (EBIT) in 2009. Already for the second quarter we expect a significant improvement in income .... while the price of fuel is falling," finance director Antonio Grau said.

Second-quarter figures will be helped by Easter falling in April this year, and the year-on-year comparison will be aided by the fact Vuleing's strategic plan had not been implemented in the second quarter of 2008.

Vueling shares rose as much as 6 percent but settled back to be 2.7 percent higher at 5.25 euros by 1345 GMT, with the blue-chip Ibex index .IBEX flat.

"More than the first-quarter results themselves, the outlook was fairly upbeat which is providing a bit of a feelgood factor this morning for the stock, particularly in light of other more negative news on job cuts in other airlines," a Madrid-based trader said.

Vueling said as well as maintaining fares by cutting supply, it was stealing passengers on tight travel budgets from more expensive competitors.

Grau said demand had not changed much in recent weeks. Neither Vueling, nor its successor arising from a merger with Iberia's low-cost Clickair airline, have plans to cut more planes from a fleet that will be just over 30 strong, Grau said.