Southwest Airlines ( LUV) beat analysts' estimates in the third quarter, buoyed by improved revenue trends and cash settlements from fuel hedging.

Excluding one-time items, the carrier reported earnings of $69 million, or 9 cents a share. Analysts surveyed by Thomson Reuters had estimated 7 cents. Revenue rose 11.7% to $2.9 billion, slightly exceeding the consensus forecast. The carrier said cash-settlement gains of $448 million from fuel contracts are reflected in its profit.

Including $247 million in charges, primarily related to mark-to-market adjustments for its fuel-hedge portfolio, Southwest reported a third-quarter loss of $120 million. The amount reversed mark-to-market gains that had been recognized in prior periods.

During the quarter, revenue per available seat mile rose 11%. The improvement reflects reduced capacity growth, elimination of marginal flights, higher fares and improved revenue management. "I am delighted with the results of our efforts to drive revenue growth," said CEO Gary Kelly, in a prepared statement.

Cost per available seat mile, excluding fuel and special items, rose 6.5% to 6.86 cents, reflecting continued maintenance, airport and fuel-tax pressures.

Looking ahead, Southwest said it expects "a solid increase" in current quarter RASM, despite uncertainty about future demand. So far this month, RASM is up 14%. Also this quarter, 85% of fuel costs are hedged at an average price of $62 a barrel. CASM is expected to rise due to minimal capacity growth of about 1%.

For 2009, 75% of fuel costs are hedged at an average price of $73 a barrel. In the first quarter of 2009, capacity is expected to decrease by 5% to 6%.

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