(Adds details on fuel costs, industry background)
July 31 (Reuters) - Canada's WestJet Airlines Ltd reported a smaller-than-expected loss on Tuesday as it flew more passengers and improved a key revenue metric, offseting a steep rise in aviation fuel prices.
Airlines are seeing a rise in passenger traffic but are increasing fares to tackle fuel costs that are eating into profit margins. WestJet's bigger rival Air Canada last week lowered its 2018 guidance on two key metrics blaming rising fuel costs.
WestJet, Canada's second-largest carrier, said revenue passenger miles (RPMs), a proxy for traffic, increased 6.2 percent in the second quarter ended June 30.
WestJet, which launched its new budget airline Swoop in June, said aircraft fuel expenses rose 34.4 percent to C$302.3 million, while overall expenses increased 13.8 percent.
The Calgary-based company's net loss was C$20.8 million ($15.9 million), or 18 Canadian cents per share, in the quarter, compared with a profit of C$48.4 million, or 41 Canadian cents per share, a year earlier.
Excluding items, the company lost 18 Canadian cents per share, smaller than analysts' average expectation of 28 Canadian cents, according to Thomson Reuters I/B/E/S.
Revenue rose 2.8 percent to C$1.09 billion. ($1 = C$1.30) (Reporting by Anirban Paul in Bengaluru; Editing by Maju Samuel)