Southwest Airlines Beats

Updated from 7:58 a.m. EDT

Southwest Airlines (LUV Quote) shares rose after the airline reported higher income in the third quarter, as revenue grew and the company kept a lid on costs even as fuel prices spiked.

The low-cost carrier reported its 54th consecutive quarter of profitability Thursday, beating Wall Street earnings estimates.

Southwest, the first airline to announce third-quarter earnings, reported net income of $119 million, or 15 cents a share, an increase of 12.3% from the $106 million, or 13 cents a share, it had a year ago. The consensus Wall Street estimate was for earnings of 12 cents a share, according to Thomson First Call.

Total operating revenue came in at $1.67 billion, up 7.8% from the $1.55 billion it had a year ago, but shy of the $1.69 billion Wall Street expected.

Shares of the low-cost airline gained 42 cents, or 3.1%, to $13.99.

"Despite the weak airline industry revenue environment and higher fuel prices, Southwest achieved a double-digit improvement in earnings," said Gary Kelly, the company's chief executive, in a statement. "Our third-quarter operating cost performance was excellent, which significantly contributed to these results."

Traffic, a demand metric measured in revenue passenger miles, rose 10.4%, while capacity, a supply metric measured in available seat miles, increased at a smaller rate, 7%, a rare combination in the industry these days.

The carrier's load factor, or the percentage of seats filled on every flight, came in at 72.7% in the third quarter, up from 70.5% last year. But as airlines slash prices to stimulate demand, the amount of money Southwest took in per paying customer, measured in yield, continued to decline. The airline said yield fell 2.8% in the quarter to 11.38 cents per revenue passenger mile.

The revenue environment remains soft, and current trends "suggest" fourth-quarter unit revenue -- measured in revenue per available seat mile, or RASM -- may decline from last year's fourth-quarter figure of 8.29 cents, Kelly said.