UPDATE 2-Norwegian Air's Sept passenger income up less than forecast

* September passenger yield NOK 0.39 vs poll 0.40

* Filled 89.9% of capacity, up from 88.8% year ago

* Remains on target to cut costs by NOK 2 bln this year

* Shares rise 2.2% in early trade (Adds capacity data, bullets, background)

By Terje Solsvik

OSLO, Oct 4 (Reuters) - Norwegian Air's income per passenger rose less than expected in September, although its aircraft were more full than at the same time last year, the airline's monthly traffic report showed on Friday.

The company's yield, or revenue per passenger carried and kilometre flown, rose to 0.39 Norwegian crowns ($0.0428) in September from 0.38 crowns a year earlier, below the 0.40 crowns seen in a Reuters poll.

The loss-making airline is on track to reach its target of cutting costs by 2 billion crowns this year, acting Chief Executive Geir Karlsen said in a statement.

"The outlook going forward is promising, and for the upcoming winter season, we have adjusted our route portfolio and capacity to ensure that we are well positioned to meet the actual demand," Karlsen said.

Norwegian filled 89.9% of available seats last month, up from 88.8% a year earlier and in line with analysts' average forecast.

The company's shares were up 2.2% at 0705 GMT, partly reversing Thursday's fall of almost 5% and outperforming a 0.8% rise in Norway's benchmark stock market index.

Europe's third largest budget carrier switched this year to prioritising profits over growth, but has been hampered by the grounding of Boeing 737 MAX aircraft and technical problems with Rolls Royce engines on Boeing 787s.

It used its low-fare, high-volume model to grab market share from incumbent transatlantic carriers, and last year overtook British Airways as the largest non-U.S airline on routes between Europe and airports in the New York area.

But the breakneck expansion left it with high debts, leading to a sharp strategy change. The airline's capacity expansion, as measured by available seat km (ASK), peaked at 51% growth year-on-year in June 2018 but has since plummeted, hitting just 1% last month amid the focus on preserving cash and cutting costs.

Analysts in the Reuters poll had forecast ASK would show no growth at all in the year to September.

Norwegian's bondholders agreed last month to postpone repayments on $380 million of outstanding debt for up to two years, in the company's latest bid to sort out its finances.

A string of European airlines have folded in the last two years, including recent collapses of Aigle Azur, Adria Airways and travel firm Thomas Cook, but loss-making Norwegian has secured funding from shareholders to stay in the air.

($1 = 9.1184 Norwegian crowns) (Editing by Muralikumar Anantharaman and Edmund Blair; Editing by Mark Potter)