UPDATE 1-Chile LAN 2nd-quarter net profit up 10.7 percent

(Updates with analyst quotes)

SANTIAGO, July 29 (Reuters) - LAN LAN.SN(LFL.N), Chile's dominant airline, said on Tuesday its second-quarter net profit rose 10.7 percent from a year earlier, citing high demand in its main markets and beating some analysts' expectations.

LAN, one of Latin America's largest carriers, reported a second-quarter net profit of $47.2 million on revenue of $1.072 billion. Revenue was up 38.8 percent compared with the same period in 2007.

Five analysts polled by Reuters had forecast an average second-quarter net profit of $39.7 million -- a 7.6 percent drop -- expecting surging oil prices to offset the carrier's revenue growth and fuel hedge.

"This result is due mainly to greater demand in the markets where the company operates and high load factors for both cargo and passenger traffic," LAN said in a statement in Spanish.

But operating income fell to $43.8 million from $59.3 million because of higher fuel prices, the company said, adding its operating margin fell to 4.1 percent from 7.7 percent during the second quarter of 2007.

"If you look, they are basically weak (results)," said Felipe Mercado, an analyst with Santander research arm Santander GBM. "There is a significant contraction in margins. At least it is positive that there was no surprise to the downside."

Fuel costs rose nearly 84 percent during the quarter, supporting analysts' views that effective fuel hedges gave the bottom line a significant boost.

Revenue from passenger traffic rose 36.2 percent for the period, while revenue from cargo rose 49 percent. LAN has fared better than most airlines in the industry.