UPDATE 1-US Airways quarterly profit tops estimates

* Adjusted Q3 profit 98 cents vs estimate 92 cents

* Revenue up 2.8 percent

* Shares climb 2.6 pct in premarket trade

Oct 24 (Reuters) - US Airways Group on Wednesday reported a higher quarterly profit, topping Wall Street expectations, saying improvements in operations were fueling customer demand.

The carrier, which is in talks with AMR Corp's American Airlines evaluating a potential merger, said improved on-time arrivals and baggage handling were driving strong demand and helping to keep costs in check.

US Airways said net income was $245 million, or $1.24 a share, in the third quarter, compared with $76 million, or 41 cents a share, a year earlier.

Excluding one-time items, profit was 98 cents a share in the latest period. On that basis, analysts expected 92 cents a share on average, according to Thomson Reuters I/B/E/S.

Revenue rose 2.8 percent to $3.53 billion, compared with $3.55 billion expected by analysts.

Operating expenses rose just 0.3 percent. Costs tied to fuel and related taxes fell 1.3 percent, while expenses related to salaries increased 5.5 percent.

The airline's shares were up 2.6 percent in premarket trade.