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UPDATE 2-Southwest’s 2019 non-fuel cost forecast weighs on shares

(Reuters) – Southwest Airlines Co’s (LUV.N) forecast of higher non-fuel costs for 2019 overshadowed a better-than-expected quarterly profit and drove shares down as much as 9 percent.

A Southwest Airlines Boeing 737-800 plane is seen at Los Angeles International Airport (LAX) in the Greater Los Angeles Area, California, U.S., April 10, 2017. Picture taken April 10, 2017. REUTERS/Lucy Nicholson

Dallas-based Southwest, which has built a reputation for offering lower fares than its rivals and not charging bag or change fees, said it expects 2019 cost per available seat mile (CASM), excluding fuel and profit sharing expenses, to be up 3 percent for 2019.

Bigger rivals United Continental UAL.N and American Airlines (AAL.O) recently announced hikes in baggage fees to offset rising fuel and other costs, but Southwest continues to allow passengers to check-in two bags without additional fee.

“The company has struggled to maintain their non-fuel unit cost structure all year as they integrate their MAX fleet,” Cowen analyst Helane Becker said, but added that those costs would improve next year.

The airline, which is adding Boeing’s latest fuel-efficient single-aisle 737 MAX planes to its fleet, also said it expects to increase capacity by no more than 5 percent next year.

The fourth-largest U.S. airline also said it continues to expect its 2019 annual capital expenditures to be in the $2.0 to $2.1 billion range, similar to 2018.

The company’s net income rose to a record $615 million, or $1.08 per share, in the third quarter to Sept. 30 from a year ago, beating the Wall Street consensus forecast of $1.06.

Total operating revenue rose 5.1 percent year-on-year to $5.57 billion, also a record for the quarter.

Fourth-quarter unit revenue – a closely watched performance measure that compares sales to flight capacity – to rise one to two percent.

Despite a rise in global travel demand, airlines are trying to avoid adding too many seats to a competitive market, particularly as high fuel prices eat into profits.

Southwest’s fuel cost rose 16.2 percent during the quarter.

Reporting by Rachit Vats in Bengaluru and Tracy Rucinski in Chicago, Editing by Supriya Kurane, William Maclean

JEFFREY LIPTON in BARBADOS – http://feeds.reuters.com/~r/reuters/companyNews/~3/8uXzqziicWY/update-2-southwests-2019-non-fuel-cost-forecast-weighs-on-shares-idUSL3N1X5475