By Daniel Wiessner

Dec 6 (Reuters) - A U.S. judge on Friday said Southwest

Airlines ( LUV ) must face a lawsuit by a prominent affirmative

action opponent claiming a now-defunct program that awarded free

flights to Hispanic college students was racially

discriminatory.

U.S. District Judge Sidney Fitzwater in Dallas said

Southwest's ( LUV ) elimination of the 20-year-old program and offer to

pay Edward Blum's American Alliance for Equal Rights one cent -

the amount of damages sought in the lawsuit - did not make moot

claims that the airline discriminated against two students, one

white and the other Asian.

Since 2004, Southwest's ( LUV ) "¡Lánzate!" program helped 1,500

Hispanic undergraduate and graduate students who lived at least

200 miles (322 km) from their school.

The Dallas-based airline, which did not immediately respond

to a request for comment on Friday, ended the program after the

lawsuit was filed in May.

Southwest ( LUV ) had argued that its offer to provide all relief

sought by Blum's group made the entire lawsuit moot.

But Fitzwater disagreed, allowing the group to move ahead

with claims Southwest ( LUV ) violated a Civil War-era law barring

racial bias in contracting.

Such a ruling could be cited in future cases over diversity

and inclusion programs, which are facing increased scrutiny and

a growing number of legal challenges.

"This decision is a powerful tool to prevent case-mooting

tactics from discriminators nationwide," Blum said in a

statement after the ruling.

The lawsuit is among the latest in a series of cases Blum

has filed challenging corporate diversity programs after another

group he founded last year convinced the conservative-majority

U.S. Supreme Court to bar the consideration of race as a factor

in college admissions.