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UPDATE 3-American Airlines 3rd-qtr profit beats Street, shares fall

(Updates share price, adds comments from earnings call)

Oct 26 (Reuters) - American Airlines Group Inc, the No. 1 U.S. airline, reported a better-than-expected quarterly profit on Thursday on higher demand for business and leisure travel, even as its operations were significantly disrupted by severe hurricanes.

For the current quarter, American said it expects revenue per available seat mile, a closely watched metric that compares sales to flight capacity, to rise between 2.5 percent and 4.5 percent from a year ago.

Despite the carrier's solid third-quarter report and healthy outlook for the fourth quarter, shares fell by 2.47 percent to $49.76 in midday trading.

American's third-quarter operating expenses swelled by 5.3 percent to $9.6 billion, a sore spot for investors, primarily from increases in the cost of fuel and labor, which have caused expenses to spike across the industry.

Earlier this year, American said it had offered an unexpected mid-contract pay increase to its pilots and flight attendants, which will cost the airline an additional $230 million for 2017 and $350 million for 2018 and 2019.

The airline's pretax margin, excluding special items, is forecast between 4.5 percent and 6.5 percent for the current quarter.

Earlier this month, rival Delta Air Lines Inc also reported a better-than-expected profit as disruptions caused by Atlantic hurricanes cost the airline less than investors had feared.

American said it canceled nearly 8,000 flights due to the hurricanes, reducing pretax earnings by about $75 million.

"Despite the significant operational challenges posed by three hurricanes, our team delivered solid financial results," Chief Executive Officer Doug Parker said in a statement.

Net income fell by 15 percent to $624 million, or $1.28 per share, from $737 million, or $1.40 per share, a year earlier.

On an adjusted basis, American earned $1.42 per share.

Operating revenue rose to $10.88 billion from $10.59 billion.

Analysts, on average, expected quarterly profit of $1.40 per share on revenue of $10.88 billion, according to Thomson Reuters I/B/E/S.

On the carrier's quarterly earnings call on Thursday, CEO Parker responded to a high-profile travel advisory from a leading civil rights group that advised black travelers to avoid flying on American based on what it called a pattern of racially biased incidents.

"Discrimination, exclusion and unconscious biases are enormous problems that no one has mastered," Parker said in response to the travel warning issued on Tuesday by National Association for the Advancement of Colored People (NAACP).

Parker said American Airlines has reached out to the NAACP and he expected the two to work together "in the very near term." (Reporting by Ankit Ajmera in Bengaluru and Alana Wise in New York; Editing by Bernard Orr, Jeffrey Benkoe and Jonathan Oatis)