U.S. airlines have merged, raised ticket prices and shown discipline in cutting back flights to match demand to return to stability over the past two years.

"Southwest and the rest of the airlines are really focusing in on the routes that are higher-yielding and more profitable, and as a whole that has helped the industry," said Matthew Jacob, an airline analyst with ITG Investment Research.

The traditional low-fare leader said it plans to keep 2012 seat capacity flat with 2011 levels, and projected fuel costs in the current quarter to be lower than the second period.

The second quarter is typically one of the strongest for airlines as travel picks up during warm months.

On Wednesday, bankrupt American Airlines parent AMR Corp (AAMRQ.PK) posted a second-quarter profit before items as corporate customer gains helped lead to its highest quarterly revenue ever. Other airlines are expected to post higher profits next week.

"Southwest and others will readily admit that the economic backdrop is tenuous at best, but at this point they are not seeing any impact on business," said Fred Lowrance, senior research analyst with Avondale Partners.

"The challenge is they can't really give a good read on what it's (demand) going to look like three or four months from now," he added.

Southwest (LUV.N), which acquired discount rival AirTran Holdings last year, said second quarter net income was $228 million, or 30 cents a share, compared with $161 million, or 21 cents a share, a year earlier.

Excluding items, profit was 36 cents a share. Analysts on average were expected 32 cents, according to Thomson Reuters

I/B/E/S.

Operating revenue rose nearly 12 percent to $4.62 billion, outpacing an increase of about 6 percent in operating expenses. The average fare rose about 5 percent to $150.31.

Fuel costs were $3.22 a gallon in the second quarter, compared with $3.28 a year earlier, Dallas-based Southwest said. For the third quarter, costs were projected at $3.05 to $3.10.

U.S. oil prices have fallen from highs of $110 reached earlier this year, but have picked up in recent weeks. U.S. crude was trading at about $91 a barrel on Thursday.

Shares of Southwest, which have risen 11 percent this year, were up 1.1 percent to $9.52 in morning trading.

(Reporting by Karen Jacobs; Editing by Lisa Von Ahn, Gerald E. McCormick and Sofina Mirza-Reid)

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