Low-cost carrier Southwest Airlines (NYSE:LUV) reported third-quarter earnings Thursday, checking in with net income of $227 million, or $0.28 per stub. The Dallas-based airline has long been a consistently successful company, of course, boasting an awe-inspiring track record of more than 30 years of profitability in a moribund industry where -- these days, anyway -- "belly-up" refers not so much to fanciful feats of aerial derring-do but rather to all too many corporate balance sheets.

To wit: United Airlines,Delta, and Northwest are all now operating under Chapter 11 bankruptcy protection, and fellow legacy carrier US Airways Group (NYSE:LCC) has just recently emerged from it.

Not so Southwest -- far from it, in fact. And given the industry's environment, the company's ongoing success is all the more impressive. Indeed, even after doing the regulatory math and subtracting out certain unrealized gains that accrued over its third fiscal quarter of 2005, the company still earned some $174 million, an increase in net income of more than 46% over the year-ago period. On a per-share basis, that adjusted figure nets out to $0.21 per stub, a number that easily surpassed the mean analyst estimate for Southwest of $0.18 per share.

Not too shabby, eh?

And beyond that, given that New Orleans is one of Southwest's major markets, those numbers are even more impressive when you factor in the devastating impact of Hurricane Katrina on the Gulf Coast region and, more particularly, on the Crescent City's Louis Armstrong Airport, which shut down for roughly three weeks in the aftermath of the hurricane.

That thing they do
So how, exactly, does Southwest do it? Good question.

The short and easy answer has always been that the company keeps the lid shut tight on costs -- both in-house and for customers alike. Its famously low fares, for example, drive big business among cheapskate travelers (such as yours truly), and its Q3 numbers owed substantially to chart-topping passenger revenue.

As gauged on the basis of available seat miles (ASM), in fact, Southwest's operating revenue ticked up by nearly 6%. What's more, given the company's recent expansion into the Fort Myers, Fla., and Pittsburgh markets -- not to mention its plans to return to Denver in early 2006 after a two-decade interregnum -- one can reasonably expect that revenue per ASM will continue going up. Where these guys go, after all, they tend to succeed.

Moreover, even after doling out richer (and no doubt well-deserved) salaries to its employees in recent years, the company's cost structure is still of the buttoned-down variety. Indeed, with the exception of fuel costs, Southwest did its business during the third quarter with even more cost efficiency than it did during the comparable period in 2004.

Turbulence ahead?
Still, while the investment case for Southwest remains strong, there are a number of potential pitfalls that prospective investors should bear in mind before booking a reservation with the company's stock.

First, as TheNew York Times reported in last week's Sunday business section, a third of the fuel-cost hedges that have insulated the firm from the recent surge in energy prices will begin expiring next year. Beyond that -- and though, to be sure, the diminution will come in graduated stages -- Southwest's prescient fuel strategy will be a moot point come 2010: That's the year all of its current hedging bets are off.

Furthermore, as its competitors reorganize under Chapter 11 protection, they'll no doubt take Southwest's lean-and-mean strategy -- as well as those of Motley Fool Stock Advisor pick JetBlueAirways (NASDAQ:JBLU) and Ireland's RyanairHoldings (NASDAQ:RYAAY) -- as a model. I mean, who would blame them? Trouble is, that means increased competition for Southwest, which means increased pricing pressure and, presumably, compressed profit margins for the company as well.

Don't count on it
We, however, shall see. After all, the legacy carriers have tried to copy Southwest's model in the past (anyone remember United Shuttle, Delta Express, and US Airways' Metrojet?), and, well, they still landed in bankruptcy.

Southwest didn't attain its stellar fiscal track record by sitting idly by as its competitors made bold moves. And given its expansion during an overall period of industry retrenchment, it's clear that the company intends to stick to its strategic knitting.

What's more, the threat of rising fuel prices appears far less ominous when viewed in historical context. To be sure, in inflation-adjusted terms, we are far from crude oil's all-time high-end price range. Beyond that, if history is any guide, current prices are likely to ebb. Indeed, they've already begun to do so, with a barrel of crude hovering lately closer to the $60 -- as opposed to the $70 -- mark.

Will that descent continue? Hard to say. But based on Southwest's long-haul track record of zigging where other airlines have tended to zag (and drag), I think the company, in analyst parlance, is a strong buy.

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Shannon Zimmerman is the lead analyst for Motley Fool Champion Funds and doesn't own shares of any of the securities mentioned. The Fool has a strict disclosure policy, and you can read all about it by clicking right here.