Southwest Airlines ( LUV) said its fourth-quarter profits declined as fuel costs rose, but the carrier's initiatives aimed at business travelers helped to boost unit revenue.

Earnings, excluding special items, were $87 million, or 12 cents a share, in the latest quarter. Analysts surveyed by Thomson Financial had estimated 10 cents a share. Revenue rose 9.5% to $2.5 billion and was in line with estimates. In the same quarter a year earlier, Southwest earned $100 million, before items.

"Fourth-quarter and full-year results fell short of our earnings goals," said CEO Gary Kelly in a prepared statement. "Although we were well prepared, 2007 was much more difficult than anticipated due to rising energy prices throughout the year and softer demand for domestic air travel."

Excluding special items, full-year earnings fell to $471 million from $578 million in 2006.

During the quarter, revenue per available seat mile increased 3.7%. Capacity rose 5.6%. Results improved each month during the fourth quarter and into the current quarter, Southwest said, partially as a result of its business select fares, which offer preferred boarding, extra frequent flier miles and a free drink in return for higher ticket costs.

On Wednesday, the carrier said it will test in-flight Internet connectivity on four aircraft this summer.

Costs per available seat mile, before items, rose 4.1% to 9.15 cents, largely as a result of higher fuel expenses. Despite hedging-related gains of $300 million, fuel costs jumped 10.3%. CASM excluding fuel was up 1.7% to 6.57 cents. The carrier has 75% of its current-quarter fuel needs capped at $51 a barrel.

Southwest said it plans to expand capacity between 4% and 5% during 2008, taking delivery of 39 new aircraft while shedding 22 planes.

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