UPDATE 2-EasyJet uplift fails to pierce airline industry clouds

* Revenue boosted by pilot strikes at rivals BA and Ryanair

* Highlights challenging market conditions

* Capacity growth to be at lower end of historic range next year

* Shares drop 5% from five-month high (Adds shares, detail)

By Alistair Smout

LONDON, Oct 8 (Reuters) - British budget airline easyJet expects full-year profit towards the top end of expectations, helped by pilot strikes at rivals British Airways and Ryanair, it said on Tuesday.

EasyJet shares, however, fell sharply from a five-month high hit in the previous session, with some brokers disappointed by a lack of positivity on the underlying outlook given the struggles of rivals across the sector.

British Airways pilots went on strike for two days last month, grounding thousands of flights. BA owner IAG said that the strikes would take 137 million euros ($150.47 million) off this year's earnings.

Though Ryanair flights ran as scheduled during industrial action last month, easyJet said the strikes helped to lift its revenue per seat by 0.8% in the second half, having previously expected a slight fall.

EasyJet now expects full-year headline pretax profit of between 420 million pounds ($515.6 million) and 430 million pounds, said Chief Executive Johan Lundgren, citing increased demand because of the disruption at British Airways and Ryanair.

It had previously forecast profit between 400 million and 440 million pounds.

While Lundgren also pointed to more price points for seat selection and hold luggage, as well as measures to make its fleet more resilient to operational disruptions, he said market conditions remain "challenging".

The company added that full-year headline costs would increase by about 12%, partly due to higher fuel prices.

Bernstein analysts said they hope for more detail from next month's full-year earnings call on whether the boost from strikes at BA and Ryanair was obscuring underlying trends.

Travel group Thomas Cook collapsed last month, with the company unable to service its debts and convince banks to back a rescue plan in the face of changing customer habits and intense competition from fast-growing airlines such as easyJet and Ryanair.

EasyJet's expected capacity growth in 2020 is expected to be at the lower end of its historic range, it said on Tuesday.

"The market was hoping for a more robust commentary, with a mention to positive pricing trends, with this needed to deliver reasonable profit growth this year given the less attractive fuel hedging it has in place compared to last year's rates," broker Goodbody said in a note.

"Overall, we see today’s release as disappointing." ($1 = 0.9105 euros) ($1 = 0.8145 pounds)

(Reporting by Alistair Smout Editing by David Goodman)