Updated from 8:39 a.m. EDT

Investors showed their love for

Southwest Airlines

(LUV) - Get Report

shares Thursday after the company reported stronger first-quarter profits that beat Wall Street expectations.

The low-fare airline Thursday reported first-quarter net income of $76 million, or 9 cents a share, almost triple the $26 million, or 3 cents a share, it earned a year before. On average, analysts forecast EPS of 5 cents, according to Thomson First Call.

Earnings were driven by strong revenue trends in March, Southwest's aggressive fuel-hedging program and cost-cutting. EPS also received a 2-cent boost from changes in the fair market value of derivatives the airline uses to hedge fuel costs.

Southwest said revenue was $1.66 billion, up 12.1% from $1.48 billion a year before and higher than the $1.65 billion analyst consensus.

Shares were up 18 cents, or 1.2%, at $14.90 after rising as high as $15.40. Most other major airline stocks fell, however, and the

Amex Airline Index

was off 3.8%.

"Considering the many challenges our industry continues to face, we are grateful to report first quarter 2005 earnings of $76 million," said Gary Kelly, the company's CEO. "Our rigorous focus on cost reduction and successful fuel hedging program shielded us from record high energy prices and enabled us to report our 56th consecutive quarter of profitability."

Unit revenue, measured in revenue per available seat mile, or RASM, increased 1.9%, driven by a significant increase in Southwest's freight business and positive passenger revenue trends in March. Easter's early occurrence boosted the airline's load factor, or percentage of seats filled, to 73.7% during the month. Southwest's recent fare increases, its code-sharing agreement with

ATA

(ATAHQ.PK)

and capacity reductions by competitors also boosted March unit revenue.

That performance surprised some analysts. J.P. Morgan's Jamie Baker, for example, expected unit revenue to decline 1.5%.

Most U.S. airlines are expected to report significant losses for the quarter as a result of high fuel costs.

But Southwest's aggressive hedging program, which capped 86% of its fuel needs in the first quarter, reduced its fuel expense by $155 million. The airline has hedged 83% of its second-quarter needs at a crude oil price of $26 a barrel. Oil's recent surge to new record levels will increase the airline's unhedged fuel expenses, however, and Southwest expects to spend more this quarter on jet fuel than the first quarter's 90.3 cents a gallon.

Southwest continued to trim other expenses. Excluding fuel, unit costs, measured in cost per available seat mile, or CASM, fell 3.8% to 6.32 cents. The airline said non-fuel unit costs will not "significantly exceed" that level in the second quarter.

Although the company said bookings are "satisfactory" for May and June, the early Easter this year is negatively affecting passenger traffic in April. The company said its load factor will likely decline this month from a year ago, which could prevent second-quarter unit revenue from increasing from last year.

Southwest's balance sheet remains strong. The airline ended the quarter with $1.9 billion in cash and an available unsecured credit line of $575 million.

During the quarter, airline returned some cash to investors in the form of stock buybacks, purchasing about 3.9 million common shares. The buybacks were part of a previously announced $300 million repurchase program.

Next week will see a stream major airlines report earnings, with

Continental

(CAL) - Get Report

and

AMR's

(AMR)

American Airlines

scheduled for Wednesday.

JetBlue

(JBLU) - Get Report

,

Delta Air Lines

(DAL) - Get Report

and

Northwest

(NWAC)

plan to report Thursday. Analysts predict all will log hefty losses, with the exception of JetBlue, which is expected to earn 3 cents a share.