Gary C. Kelly

Airline revenue is rising but so too are costs

Airlines have figured out how to extract more money from passengers, and they will need it to cover rising costs for their own fuel, labor and other expenses.

Not long ago, investors demanded that the airlines boost prices, even if it meant reducing flights to create a shortage of seats. Now they are obsessed with controlling expenses.

They punished Southwest Airlines Co. on Thursday after the carrier warned about a surprisingly large increase in costs next year. Southwest reported a 16 percent increase in third-quarter profit on higher revenue, beating expectations, but the shares dropped more than 8 percent in afternoon trading.

On the other hand, American...