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Virgin America tops third-quarter estimates, expects unit revenue decline

A Virgin America Airbus A319 takes off from San Francisco International Airport, San Francisco, California, February 7, 2015. REUTERS/Louis Nastro

By Jeffrey Dastin

(Reuters) - Virgin America Inc (VA.O) on Thursday said lower fuel costs helped its profit jump in the third quarter, but forecast that the money it makes per mile would fall in the fourth quarter as it expands flight capacity amid intense competition.

The Burlingame, California-based airline earned $71.9 million in the quarter, up 73 percent from a year earlier. Excluding special items, it earned $73 million, or $1.64 per share, topping the average analyst estimate of $67 million, or $1.56 per share, according to Thomson Reuters I/B/E/S.

However, it said a key indicator of the business's long-term health would fall in the fourth quarter. It expects passenger unit revenue, which compares sales to capacity, will fall between 3 percent and 5 percent from a year ago.

That is in part because Virgin America expects to add two single-aisle planes into service in the quarter, contributing to an uptick in capacity between 9.5 percent and 10.5 percent from a year earlier. Its fleet totaled 55 planes at the end of the third quarter.

Capacity has also outpaced demand in some cities to which Virgin America flies, particularly Dallas, pushing down fares.

Chief Executive David Cush said in an interview that plans by American Airlines Group Inc (AAL.O) to roll out cheap fares with more restrictions in 2016 could intensify competition.

The result is passenger unit revenue guidance that's "definitely worse" than anticipated, said Sterne Agee CRT analyst Adam Hackel.

The same measure fell 2.7 percent in the third quarter.

More growth is in the airline's future.

Chief Financial Officer Peter Hunt said in the same interview that Virgin America aims to expand capacity by around 10 percent per year. It is considering service to new cities such as Phoenix, Houston and Denver to attract business travelers.

Cush said Virgin America is "very interested" in leasing several A321 planes made by Airbus Group SE (AIR.PA), which would be the largest in its fleet and would help it fly more customers to slot-constrained airports.

Virgin America forecast unit costs excluding fuel, profit-sharing and special items will rise between 2 percent and 3 percent in the fourth quarter because of higher wages and benefits.

In the third quarter, the airline's operating profit margin was 18.2 percent, up 5.3 points from a year ago, as the average price of its largest variable expense, fuel, fell 38.7 percent.

Shares were up 0.2 percent at $35.23 in late Nasdaq trading.

(Reporting By Jeffrey Dastin in New York; Editing by Nick Zieminski)