UPDATE 1-Air Canada's operating profit jumps threefold
* 2nd-quarter operating income rises to C$174 mln from C$63 mln year earlier
* Adjusted profit C$0.41/shr vs loss C$0.02/shr year earlier
* Passenger revenue per available seat mile rises 0.9 pct
* Says capacity to increase 2.5-3.5 percent in current quarter
Aug 7 (Reuters) - Air Canada reported a nearly three-fold jump in second-quarter operating profit as margins improved, and Canada's largest airline said capacity will increase in the current quarter.
Air Canada is boosting capacity with the launch of its Rouge airline in July as competition ramps up among Canadian airlines. The low-cost carrier is aimed at high-volume leisure travel in the Caribbean, the United States and other international markets.
The airline said it expects system capacity as measured by available seat miles to increase 2.5-3.5 percent in the third quarter.
Air Canada's operating income rose to C$174 million ($167.7 million) in the second quarter from C$63 million a year earlier.
Operating revenue rose 2 percent to C$3.06 billion. Operating margins improved to 5.7 percent from 2.1 percent.
The company's net loss narrowed to C$23 million, or 9 Canadian cents per share, from C$161 million, or 59 Canadian cents per share.
On an adjusted basis, Air Canada earned 41 Canadian cents per share, compared with a loss of 2 Canadian cents per share.
Air Canada's passenger revenue per available seat mile (RASM), or unit revenue, increased 0.9 percent.
Montreal-based Air Canada said it still expects capacity to increase 1.5 percent to 2.5 percent this year.
WestJet Airlines Ltd, Canada's No. 2 airline, posted a slightly higher-than-expected quarterly profit last week but warned that RASM would decline in the near term as it launches its Encore regional carrier.
Air Canada's more heavily traded class B shares closed at C$2.12 on the Toronto Stock Exchange on Tuesday.