(Reuters) - U.S. budget carrier Southwest Airlines' fourth-quarter profit surpassed Wall Street estimates on Thursday, helped by robust travel demand and improved airfares.

The airline also forecast better-than-expected unit revenue (RASM), a proxy for pricing power, for the first quarter.

Airlines across the U.S. have cut seating to boost fares after a surplus capacity, introduced last summer in anticipation of a demand surge, forced airlines to offer discounts and sacrifice margins.

Airfares in December rose at their fastest pace in 21 months. 

This helped Southwest report an adjusted profit of 56 cents per share for the fourth quarter ended Dec. 31, compared with analysts' average estimate of 44 cents, according to data compiled by LSEG.

Its operating revenue rose 1.6% to $6.93 billion from a year earlier.

At its investor day in September, the airline unveiled plans including vacation packages and aircraft sale-leasebacks to enhance its revenue and liquidity, at a time when the industry struggles with inflated labor and aircraft maintenance expenses.

"While we still have much work to do, we are pleased that the improvements from our tactical initiatives are materializing faster than expected, and our progress continues to be further supported by a constructive demand environment and industry backdrop," CEO Bob Jordan said. 

The company expects first-quarter RASM to grow about 5% to 7%, compared with analysts' expectation of a 2.62% increase.

It sees cost per available seat mile, excluding fuel, to be up 7% to 9% as it bears the brunt of expensive labor contracts.

Southwest, which has an all Boeing fleet and has been hit hard by the planemaker's jet delivery delays, expects to receive 38 737 MAX 8 aircraft from the planemaker in 2025.

(Reporting by Shivansh Tiwary in Bengaluru; Editing by Shinjini Ganguli)