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Earnings Preview: Southwest to report 1Q results

DALLAS (AP) -- Passenger traffic has been rising this spring on Southwest Airlines, yet a key revenue figure for the nation's fourth biggest carrier has been stuck in neutral.

Airlines haven't been able to raise prices as often or as fast as they did a couple years ago. Southwest could indicate how that affects its business when it reports first-quarter financial results on Thursday.

United Continental Holdings Inc., the world's biggest airline company, and JetBlue Airways Corp. report earnings the same day.

WHAT TO WATCH FOR: The first quarter is usually the weakest of the year for airlines, as leisure travelers wait for spring break and summer vacation.

Southwest, which also owns AirTran Airways, reported that traffic on the two carriers rose a healthy 4 percent in March compared with a year earlier. But a key measure of revenue for every seat flown one mile was flat. Other airlines also reported weakness in the revenue figure for March, indicating that they aren't enjoying the same pricing power that they did until recently.

Delta and US Airways blamed it on late bookings due to pending automatic federal spending cuts, which might have reduced travel by government employees.

Investors will be listening for Southwest's interpretation of the latest figures, and its outlook for the rest of the year.

WHY IT MATTERS: Southwest may be the most important player when it comes to whether airline fare increases stick or not. When Southwest balks at others' increases, it usually forces rivals to back down. When Southwest joins — or initiates — a fare increase, it nearly always sticks.

Southwest CEO Gary Kelly has at times sounded more cautious about the fragile nature of travel demand and whether passengers will pull back if the airlines raise prices too fast. Kelly's view on the current environment will be watched closely in the industry.

WHAT'S EXPECTED: On average, analysts surveyed by FactSet expect Southwest to report first-quarter earnings of 2 cents per share, excluding special items such as increases or decreases in the value of Southwest's fuel-hedging contracts.

Daniel McKenzie, an analyst for The Buckingham Research Group, slightly lowered his forecast of first-quarter profit on Monday. Southwest likely had "modest" revenue weakness due to the federal spending cutbacks — one of Southwest's biggest operations is at Baltimore-Washington International Airport, making it vulnerable to cuts in the D.C. area, he wrote in a note to clients.

The analysts surveyed by FactSet expect Southwest to post revenue of $4.07 billion.

LAST YEAR'S QUARTER: In the first quarter of 2012, the Dallas-based airline reported net income of $98 million. Excluding gains from hedging contracts that are designed as insurance against fuel price spikes, Southwest would have lost 2 cents per share. Revenue was $3.99 billion.