Southwest Airlines Co. (LUV) Wednesday reported a 54 percent increase in fourth-quarter earnings, boosted by strong passenger traffic as well as hedges that protected it from fuel price rises.

Southwest, the leading U.S. low-cost carrier and the No. 1 U.S. airline by market value, said profit rose to $86 million, or 10 cents a share, from $56 million, or 7 cents a share, a year earlier.

Excluding special items, Southwest earned 12 cents a share, compared with the average forecast of 13 cents from analysts polled by Reuters Estimates.

Operating revenue rose 20 percent to $1.99 billion. The Dallas-based company benefited from both aggressive expansion and strong demand for travel, which allowed it to raise fares, though less than most of its rivals.

"As a result of strong customer demand, we achieved a record fourth quarter load factor of 69.6 percent at improved yields, which were up 4.2 percent," Southwest Chief Executive Gary Kelly said in a statement.

Southwest's trump card continued to be its extensive bet on contracts that lock in fuel prices at levels far below today's market. The fuel hedges saved it $258 million during the quarter, though its fuel and oil costs still rose 43 percent in the period, Southwest said.

With oil prices at more than three month highs, those hedges have helped Southwest shares relative to the rest of the airline industry in the early part of 2006. Southwest shares are down 3.4 percent so far this year, compared with an 11.9 percent drop in the Amex Airlines index .

Southwest's results included an unexpected $24 million in additional airport security expenses assessed by the Transportation Security Administration. The airline called the assessment "completely unexpected" and said it planned to protest it.

Looking ahead, Southwest said its first-quarter outlook was favorable but noted that income could be squeezed by the fact that the Easter holiday this year falls in April rather than in March as it did last year.

"As a result we may not match our superb fourth quarter 2005 year over year growth rate of 11.7 percent in first quarter 2006," Kelly said.

Southwest plans to add another 30 planes to its all Boeing 737 fleet in 2006, boosting available seats by about 8 percent. The airline, which recently began serving Denver, Colorado, said it will decide on whether to start flying to another city based on the needs of its existing markets.

One market where it will expand is Chicago's Midway airport, where bankrupt ATA Airlines has agreed to sell it the leasehold rights to four more gates for a $20 million reduction in a loan Southwest had previously extended.