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UPDATE 1-TUI says strong holiday demand helps to offset MAX grounding cost

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LONDON, Feb 11 (Reuters) - European travel company TUI said strong demand for holidays would help offset the impact of the grounding of the Boeing 737 MAX aircraft on its annual profit, enabling it to lift the bottom end of annual earnings guidance.

TUI is benefiting from the failure of rival travel company Thomas Cook last September, helping it to pick up new customers, but at the same time it faces headwinds from the grounding of the MAX as it has to pay to lease other planes.

The company said for the 12 months ended Sept. 30, it expected underlying core earnings (EBIT) to be in the range of 850 million euros to 1,050 million euros, compared to the 893 million euros it reported in the previous period.

In December, including its top estimate of the MAX cost for the rest of the year which was up to 270 million euros, it said core earnings could have come in at 680 million euros.

The 737 MAX was grounded last March after two crashes killed 346 people, and the aircraft is not expected to be back into service until mid-2020.

Reporting first quarter results on Tuesday, TUI said that over the rest of this financial year the MAX grounding would cost it 220 million euros to 245 million euros, compared to guidance given in December of up to 270 million euros.

TUI said that it would offset the cost of the MAX grounding from strong demand for holidays, and from a "certain level" of compensation it expected to receive from Boeing.

(Reporting by Sarah Young Editing by Shri Navaratnam and Kate Holton)

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