updated 10/14/2004 8:15:11 AM ET 2004-10-14T12:15:11

Low-fare carrier Southwest Airlines Co. said Thursday that its third-quarter profit rose 12.3 percent to beat Wall Street expectations despite higher fuel costs.

The company posted quarterly earnings of $119 million, or 15 cents per share, on revenue of $1.67 billion, up from $106 million, or 13 cents per share, on $1.55 billion in revenue last year.

Southwest's earnings were in line with its July forecast for net income above the prior year's results.

Analysts surveyed by Thomson First Call expected the company to earn 12 cents per share on $1.69 billion in revenue.

The company said that even with average fuel prices up more than 10 percent, third-quarter unit costs increased only 1.3 percent due to Southwest's hedging program. The airline said excluding fuel, unit costs were flat with the year-ago quarter and below first-half 2004. Southwest said it is "on track" with cost reduction targets and expects fourth-quarter unit costs, excluding fuel, to decline from the 2003 period.

Chief executive Gary C. Kelly said, "The revenue environment has softened since July, and recent trends, along with more competitive capacity, suggest fourth-quarter 2004 unit revenue may decline from fourth-quarter 2003 unit revenue of 8.29 cents. Although bookings for October are fine, our passenger revenue yield per revenue passenger mile continues to fall below year-ago levels."

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