Southwest Airlines said Thursday that it faces higher costs in 2025 as inflation persists, but it managed to swing to a fourth-quarter profit due to a boost from lower fuel prices.

The airline also forecast better-than-expected unit revenue (RASM), a proxy for pricing power, for the first quarter. Airlines across the U.S. have cut seating to boost fares after a surplus capacity, introduced last summer in anticipation of a demand surge, forced airlines to offer discounts and sacrifice margins.

Southwest Airlines Co. warned that costs will climb faster than expected as it grapples with heavy labor expenses, undercutting gains from strong demand for leisure travel.

Southwest Airlines reports strong Q4 performance with record revenue but misses revenue expectations, plans $750M share repurchase program for Q1.