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UPDATE 3-Alaska Air quarterly profit jumps 13.8 pct, helped by Virgin America

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July 26 (Reuters) - Alaska Air Group Inc on Wednesday posted a 13.8 percent rise in quarterly profit, helped in part by the December 2016 acquisition of former rival Virgin America.

Alaska, now the fifth-largest U.S. carrier by passenger traffic, reported second-quarter net income of $296 million, or $2.38 per share, up from $260 million, or $2.10 per share, in the period a year earlier.

The Seattle-based airline posted adjusted earnings of $2.51 per share, just short of analysts' consensus forecast of $2.52 per share, according to Thomson Reuters I/B/E/S.

Earnings from the prior year do not include Virgin America's results.

"We had a very solid quarter, driven by a growing customer base and strong revenue performance," Alaska Air Chief Executive Brad Tilden said in a statement.

Quarterly passenger unit revenue, which compares sales to flight capacity, rose 1.3 percent in the period ended June 30. Total operating revenue rose 40.7 percent to $2.10 billion, in line with analysts' consensus estimate.

Speaking to reporters and industry analysts on Wednesday, Tilden praised the company's second-quarter performance, but noted a number of lingering operational challenges in uniting the two carriers.

Alaska and Virgin America pilots are currently in talks to secure a joint contract, which after failing to reach a consensus in mediated talks, will now go into arbitration beginning later this year.

Alaska said its position on the new pilot contract will add an estimated $140 million in unit costs.

Looking ahead to the third quarter, Alaska Air said it plans to increase capacity, or how many seats an airline flies and how far it flies them, by 8 percent.

Shares of Alaska were up 0.9 percent in early afternoon trading. Alaska shares retraced earlier losses after dropping as much as 3.4 percent in morning trading. (Reporting by Alana Wise in New York and Ankit Ajmera in Bengaluru; editing by G Crosse)