Southwest's Not Afraid to Talk Profit

Updated from 7:02 a.m. EDT

A confident Southwest Airlines (LUV Quote) beat analysts' first-quarter targets Thursday and said it might very well meet or exceed its own goal of 15% earnings growth this year.

On top of that forecast, the carrier said it plans to grow its fleet as well, by exercising options for 79 additional Boeing jets.

Despite a 10% rise in unit costs, driven by sky-high fuel prices, the Dallas-based carrier made $61 million, or 7 cents a share, in the quarter, compared with $59 million, or 7 cents a share, a year earlier. Excluding hedging losses and gains, earnings rose to 8 cents a share from 5 cents last year, beating the Thomson Financial estimate by a penny.

Revenue rose 21% from a year ago to $2.02 billion, topping the $1.96 billion forecast from Wall Street.

During a conference call, Southwest CEO Gary Kelly told reporters and analysts that the airline's full-year goal remains 15% earnings growth, but that analysts' higher estimates of 71 cents a share for 2006 are achievable "if we can continue at this pace during the second, third and fourth quarters."

"It's not our forecast, but we're not telling you it is wrong either," Kelly said. He noted that he wants growth to come through increased passenger counts, rather than through ticket price increases, and he expressed doubt that Southwest could continue to raise fares without impacting demand for seats.

"With the airlines reporting so far, we're all talking about strong demand and high load factors, (and) my hope is we'll continue to see year-over-year load factor gains," Kelly said. "We've used modest fare increases historically, and that's what we would like to continue to do. You can push fares only so far [before] a negative effect and a backlash by customers."

The decision to exercise options for Boeing 737-700s from 2007 through 2012 means Southwest now has firm orders for 140 aircraft deliveries during the period, along with 116 options for deliveries from 2008 to 2012 and 54 purchase rights for delivery through 2014.