CORRECTED-UPDATE 1-United Continental profit rises, aided by lower costs

Thu Jul 25, 2013 4:48pm EDT

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(Corrects to say stock rose as much as 1.2 percent, not 2.9 percent, in first and final paragraphs)

* Adjusted second quarter profit $1.35 per share vs estimate $1.29

* Q2 revenue reaches record level

* Passenger revenue per available seat mile up 1 percent

CHICAGO, July 25 (Reuters) - United Continental Holdings Inc on Thursday posted a higher-than-expected quarterly profit as costs at the airline fell and it raised airfares, sending its shares up about 1.2 percent in early trading.

The world's biggest air carrier said second-quarter revenue rose 0.6 percent to $10 billion, the highest ever for that period. The average airfare rose 3.5 percent to $289.46.

United has been working to win back customers who turned to rivals after technology glitches hurt customer service last year. The company made a number of changes to integrate as one carrier following the 2010 merger of UAL and Continental that formed it, including converting to a new computer reservation system.

In a fast consolidating industry, Wall Street is looking out for signs that United has moved beyond its merger related issues to make progress in revenue and profits.

Rival Delta has moved ahead after its merger with Northwest and said in May it plans to return $1 billion to shareholders over the next three years. American and US Airways are in line to merge pending government approval.

United Continental's passenger revenue per available seat mile at United, a key measure of performance in the airline industry, increased one percent.

Net income was $469 million, or $1.21 a share, for the quarter, up from $339 million, or 89 cents a share, a year earlier.

Excluding items, profit was $1.35 a share, compared with $1.29 a share expected by analysts, according to Thomson Reuters I/B/E/S.

Operating costs fell 1 percent, with fuel expenses falling 10 percent.

Shares of Chicago-based United initially rose 1.2 percent, but later fell 5.5 percent on the New York Stock Exchange. They closed at 34.30, down 1.9 percent. (Reporting by Nivedita Bhattacharjee in Chicago and Karen Jacobs in Atlanta; Editing by Gerald E. McCormick and Chris Reese)

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