April 22 (Reuters) - Southwest Airlines ( LUV ) on Wednesday forecast second-quarter earnings below Wall Street expectations and declined to update its full-year outlook, as surging fuel costs and economic uncertainty weigh on the industry despite strong demand.

The airline forecast adjusted earnings of 35 cents to 65 cents per share for the June quarter, implying a midpoint of 50 cents, below analysts' estimate of 55 cents, according to LSEG data.

It said updating its full-year adjusted earnings target of $4.00 per share "would not be productive at this time," adding that reaching that goal would require lower fuel prices and/or stronger revenue to offset higher costs.

Wall Street currently expects Southwest ( LUV ) to post full-year adjusted earnings of about $2.94 per share, well below the company's target.

The caution underscores how quickly the Iran war-driven fuel price shock has become the key swing factor for airlines, even as travel demand remains strong.

Shares of the airline were down 4.7% after the bell.

FUEL COSTS SURGE

Jet fuel costs rose faster than expected and are set to climb further.

Southwest ( LUV ) said it paid $2.73 per gallon for fuel in the first quarter, above prior guidance of about $2.40, increasing fuel expense by $164 million and cutting earnings by about 22 cents per share.

It expects second-quarter fuel prices of $4.10 to $4.15 per gallon based on the forward curve as of mid-April, pointing to further pressure on margins.

The trend is industry-wide. United Airlines this week said it expects to recover only about 40% to 50% of the increase in fuel costs this quarter and warned fares may need to rise 15% to 20% to fully offset the surge.

Southwest ( LUV ) still expects strong pricing, forecasting second-quarter unit revenue growth of 16.5% to 18.5%.

But it is keeping capacity growth in check and shifting flying to protect margins. The airline now expects full-year capacity growth of about 2%, at the low end of its prior forecast, and is suspending operations at Chicago O'Hare and Washington Dulles to redeploy aircraft to stronger markets.

"Demand continues to be strong, and we remain focused on controlling what we can control by managing costs, optimizing revenue initiatives, and directing capacity toward higher-return opportunities," Chief Executive Bob Jordan said.

Southwest ( LUV ) reported first-quarter adjusted earnings of 45 cents per share, missing analysts' estimate of 47 cents, even as revenue rose 12.8% to a record $7.2 billion and margins improved sharply.