A downbeat outlook tarnished an otherwise strong quarter for Southwest, which topped profit estimates on robust holiday travel.

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 posted a profit in the fourth quarter as bookings during the holidays were better than expected on the back of travel demand that remained strong and is expected to remain so. The carrier logged net income of $261 million,