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Flying through Dallas: Virgin America CEO says worst is over

Virgin America Inc. President and Chief Executive Officer David Cush (C) waves after ringing the opening bell of the trading session with NASDAQ President and Chief Executive Officer Robert Greifeld (3rd R) as Virgin America Inc. celebrated its initial public offering at the NASDAQ Market Site in New York, November 14, 2014. REUTERS/Mike Segar

By Sagarika Jaisinghani

(Reuters) - Virgin America Inc (VA.O), a low-cost airline partly owned by billionaire Richard Branson, said it expects business to improve in Dallas, a major airline hub where competition has led to increased discounting.

Shares of the airline, which took to the skies in 2007, rose as much as 10 percent to a four-month high of $32.87 after it also reported a better-than-expected second-quarter profit.

Dallas, which accounts for 12 percent of Virgin America's total capacity, is the hometown of No. 1 U.S. airline American Airlines Group Inc (AAL.O) and Southwest Airlines Co (LUV.N).

"We expect that the worst is behind us in Dallas," Virgin America Chief Executive David Cush said on a conference call with analysts.

Virgin America, popular among travelers for its Wi-Fi service, comfortable leather seats and mood lighting, said industry capacity growth in Dallas is expected to ease to 31 percent in the third quarter from 32 percent in the second quarter.

U.S. airlines have added capacity to take advantage of higher travel demand and weak oil prices. Low oil costs reduced American Airlines' fuel bill by $1.3 billion in the second quarter.

"We remain very bullish on the industry as a whole," Cush told Reuters. "Revenue is solid, fuel prices are low; it's a good time to be in the airline business."

Virgin America, which had a blockbuster IPO in November 2014, is the first U.S. airline to go public since Spirit Airline Inc's (SAVE.O) debut in 2011.

The airline's U.S.-focused operations have sheltered the company from a strong dollar, which has crimped revenues at rivals that fly internationally.

Virgin America, the U.S. offshoot of London-based Virgin Group and 32 percent-owned by Branson, said it expects its overall capacity to increase 2-3 percent in the third quarter.

The airline's fuel expenses fell 30 percent to $2.18 per gallon in the quarter. Chief Financial Officer Peter Hunt said these costs are expected to fall 38 percent in the third quarter.

Virgin America, which leases all 53 of its Airbus single-aisle aircraft, said it expects to take delivery of five more planes between January and June 2016.

Excluding items, the airline earned $1.46 per share, above the average analyst estimate of $1.25, according to Thomson Reuters I/B/E/S.

Total operating revenue rose 0.5 percent to $400.9 million.

Up to Wednesday's close of $29.79 on the Nasdaq, Virgin America's shares had risen 30 percent since their debut on Nov. 14.

(Editing by Maju Samuel and Saumyadeb Chakrabarty)