Here’s Why Southwest Airlines’ Shares Are Soaring

Southwest Airlines on Thursday reported a 2.6% fall in quarterly profit as the U.S. carrier’s operating expenses swelled and the average passenger fare declined.

Still, shares of Southwest (LUV) jumped 8.4% to $53.60 as analysts said they believe that positive business trends will offset higher costs in the near term.

The No. 4 U.S. airline by passenger traffic said net income dropped to $522 million in the fourth quarter from $536 million a year earlier.

Travel demand and last-minute ticket sales improved post-election, and winter holiday travel proved stronger than had been expected.

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Per share earnings rose to 84 cents from 82 cents as the number of outstanding stock fell.

Excluding special items, the company earned 75 cents per share, down from 90 cents a year earlier. The latest result beat the average analyst expectation of 70 cents per share.

Total operating revenue rose 2% to $5.08 billion on a 5% increase in available seat miles. As a result operating unit revenue dropped 2.9% in the quarter.

Unit revenue compares sales to how many seats an airline flies and how far it flies them.

Profit fell largely due to rising expenses such as fuel and costs stemming from amended union contracts. The accelerated retirement of its Boeing 737 planes also contributed to the company’s weaker gains.

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Based on the Dallas-based carrier’s fourth-quarter results, CFRA Research analyst Jim Corridore raised his projected 12-month target stock price to $58 from $50 and maintained his “buy” rating.

“We are encouraged by unit revenue trends, and see (Southwest) offsetting cost pressures with productivity and revenue management,” said Corridore in a research note.

Airline stock prices were broadly higher, with the DJ Airlines Index gaining 3.5%. One exception was JetBlue Airways, which forecast revenue per available seat mile, a closely watched measure, declining as much as 9% in January as it released earnings. JetBlue (JBLU) shares dropped 2.5%.

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