Fuel costs have spiked, forcing fare hikes, but business remains brisk for the nation's airlines. This morning, Delta Air Lines (NYSE: DAL) and Southwest Airlines (NYSE: LUV) issued their earnings results for the fourth quarter.

Delta posted a fourth-quarter loss of $70 million, or 17 cents per share, narrower than the year-ago loss of $1.98 billion (when the airline was still operating under bankruptcy protection). This per-share figure was a penny better than analysts were expecting. Excluding items, DAL lost $105 million. Revenue was 10% higher at $4.68 billion.

For all of 2007, Delta banked $1.61 billion, compared to a loss of $6.2 billion in 2006. Full-year revenue rose to $19.15 billion from $17.53 billion the prior year. The company failed to address rumors of a potential merger with Northwest Airlines (NYSE: NWA) or UAL Corp. (NASDAQ: UAUA), parent of United Airlines. For weeks, there has been speculation on the Street about a brewing merger in the crowded airline sector.

In late-morning action, DAL shares were half a percent higher.

Meanwhile, Southwest was trading half a percent lower in late-morning action. The low-cost carrier said fourth-quarter profit nearly doubled, rising to $111 million, or 15 cents per share, compared to year-ago profit of $57 million (7cents per share). Revenue rose 9.2% to $2.49 billion. Excluding items, LUV earned 12 cents per share, or two pennies above analysts' expectations. Despite this positive surprise, CEO Gary Kelly said in a statement picked up by the AP that quarter and full-year profit figures "fell short of our earnings goals," amid bad weather and other operational challenges.

Looking forward, LUV officials warned that fuel costs would be rising in 2008. For the current quarter, fuel is expected to cost $2 a gallon, up from $1.72 per gallon paid in the fourth quarter. Fuel is typically an airline's second-largest expenditure after labor.

Beth Gaston Moon is an analyst at Schaeffer's Investment Research.