Southwest Airlines ( LUV) missed Wall Street guidance because of rising costs on Thursday and saw its CEO suddenly resign, bowing to the pressure of helming the low-cost carrier through the worst three-year period in the history of aviation.

On Friday, shares of the carrier rose 22 cents, or 1.5%, to $14.97 after Credit Suisse First Boston upgraded the company to outperform from neutral, while a number of other brokerages maintained their current estimates and said the second half of 2004 -- and beyond -- looks good for the airline.

CSFB analyst Jim Higgins told investors that Southwest's revenue momentum was "impressive" and boosted his earnings estimates for the rest of 2004 and 2005 above current Wall Street consensus. "The company's outlook is much better than we had modeled, suggesting to us that consensus estimates are too low," he said in his note. "The outlook for third quarter and fiscal 2004 ex-fuel unit costs to be about flat is much better than we had modeled." (CSFB does and seeks to do business with the companies covered in research reports.)

In Higgins' view, the secret to Southwest is that it's showing such impressive gains in revenue generated per available seat mile, or RASM. In the second quarter, Southwest's RASM jumped 13.3% year over year, which the analyst said was one of the best performances of the last decade. While costs may be a problem, with network carriers such as US Airways ( UAIR) posting losses and struggling, Southwest could see upside in the coming years.

Other analysts agreed, arguing that the cost issues that Southwest faces do not change the fundamental outlook. Morgan Stanley analyst William Greene reiterated his outperform rating on shares, telling investors that he was optimistic that cost issues were peaking and that the industry was on the cusp of landmark change. (Morgan Stanley does and seeks to do business with the companies covered in research reports.)

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