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 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.

Southwest Airlines Co. reported a quarterly profit higher than analysts expected as leisure travel over the winter holidays and ticket prices both rose in the final three months of 2024.

Southwest Airlines’ fourth-quarter profit exceeded Wall Street expectations, driven by strong travel demand and higher fares. The airline expects first-quarter unit revenue to exceed projections, indicating strong pricing power.