Shares of Calgary, Alberta-based WestJet dropped 1.3 percent on Wednesday morning after the rise in second-quarter profit that Canada's No. 2 airline reported lagged lofty analyst estimates slightly.

For its premium economy offering, the airline will add extra leg room in the first four rows of its planes, or 24 seats, but not a separate cabin.

WestJet (WJA.TO) said it would begin reconfiguring its Boeing 737 fleet in August and expects to complete the work by December. The higher-fare seats will include priority boarding and complimentary on-board amenities.

"Many other airlines have had good success with their premium economy offerings and we expect this move by WestJet will help it further build its appeal to frequent-flying business travelers," National Bank Financial analyst Cameron Doerksen said in a note.

"The company will also increase the seat count on its 737-800 fleet to 174 from 166 ... so we see this move as positive from a revenue generation point of view without negatively impacting unit costs."

For the quarter ended June 30, net income rose to C$42.5 million, or 31 Canadian cents a share, from C$25.6 million, or 18 Canadian cents, a year earlier.

The result lagged the average analyst forecast for profit of 33 Canadian cents, according to Thomson Reuters I/B/E/S.

Revenue rose to C$809 million from C$742.3 million.

The airline expects third-quarter revenue per available seat mile to moderately outpace first-half growth of 6.1 percent, with ongoing margin expansion in the second half of the year.

"Demand remains strong," Chief Executive Gregg Saretsky said in a statement.

Second-quarter costs per available seat mile, or CASM, excluding fuel and employee profit sharing, rose 4.8 percent. That was outpaced by 6 percent growth in revenue per available seat mile.

WestJet lifted its outlook for full-year costs, citing higher recruitment and training costs for an expanded winter schedule, higher maintenance expenses, and a slight reduction in capacity due to its seat reconfiguration.

For 2012, WestJet expects CASM, excluding fuel and employee profit share, to increase by 3 to 3.5 percent. That is up from its previous forecast of a 1.5 to 2.5 percent rise.

WestJet said its plans to launch a regional carrier in the second half of 2013 remain on track. It has begun hiring employees and has met with representatives from 30 Canadian airports that hope to get WestJet service.

The airline will take delivery of seven turboprops from Bombardier Inc (BBDb.TO) in 2013 for the new carrier, followed by seven more planes in 2014, four in 2015 and two the following year. Delivery for 25 optional aircraft are scheduled between 2014 and 2018.

The airline increased its quarterly dividend to 8 Canadian cents from 6 Canadian cents per share.

WestJet shares dropped 37 Canadian cents, or 2.2 percent, to C$16.21 on the Toronto Stock Exchange in opening trade on Wednesday. (Reporting By Susan Taylor, additiona reporting by Ankur Banerjee in Bangalore; Editing by Don Sebastian)

• A Permanent Economic Emergency