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Southwest Beats Estimates

Revenue was $2.59 billion, up 10.5%, in the third quarter.

Updated from 12:18 p.m. EDT


Southwest Airlines

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said net income rose, but the carrier reported declining yield and a scant 2.1% increase in unit revenue for the latest quarter.

"Revenues are at record levels, but they're still not accelerating fast enough to meet cost challenges," including rising fuel charges, said CEO Gary Kelly, on a conference call. To stimulate revenue growth, Southwest plans key changes, included revamped boarding procedures, fare-structure revisions and an effort to lure business travelers.

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Southwest may even abandon a long-standing no-discounting policy to attract corporate customers. "We've got to at least be open to that," Kelly said. "We've got to give our marketing folks that tool." Targeted advertising is also planned.

In the third quarter, Southwest earned $162 million, or 22 cents a share. Analysts had estimated 21 cents. Results include one-time charges of $36 million, or 3 cents a share. Revenue was $2.59 billion, up 10.5% and in line with estimates.

Revenue per available seat mile was 10.06 cents, up 2.1%, an improvement over a second-quarter decline of 3.4%. Yield fell 0.8%, as customers gravitated to lower-priced tickets, said CFO Laura Wright.The carrier reported a record third-quarter load factor of 76.6%.

Wright said RASM dropped in July but improved afterward and rose about 3% in October. Kelly predicted the current quarter's RASM will be better than last year.

Cost per available seat mile, excluding fuel, rose 2.2% to 6.52 cents. Despite gains of $189 million from hedging, fuel costs per gallon rose 7.6%. For the fourth quarter, 90% of estimated consumption is capped at $51 a barrel.

While third-quarter capacity rose 8.1%, Kelly noted that Southwest began to slow capacity growth this month. For the fourth quarter and for 2008, capacity will grow 5% to 6%, the airline said.