* Q1 unit rev declines 2.8 pct
* Q1 profit tumbles 31.6 pct
* Shares fall as much as 4.3 pct (Adds details, analyst comments, updates shares)
By Arunima Banerjee
April 27 (Reuters) - Southwest Airlines Co reported a smaller-than-expected quarterly profit, hit by higher operating expenses and a decline in average fares.
The airline's shares fell as much as 4.3 percent to $54.52 in morning trading on Thursday.
The No.4 U.S. airline by passenger traffic said its unit revenue, a key metric that compares ticket sales with flight capacity, fell 2.8 percent in the quarter ended March 31, hurt by competitive fare pricing and a shift in Easter travel demand to April.
However, the Dallas, Texas-based carrier expects unit revenue in the current quarter to rise 1-2 percent.
The metric turned positive in April even after excluding an about $10 million benefit from the shift in Easter date, the company said.
"Unit revenue trend for Q2 is improving but it is slightly worse than elevated investor expectations, which have increased in recent weeks," Cowen & Co analyst Helane Becker wrote in a note.
Bigger rival American Airlines Group Inc forecast on Thursday total unit revenue growth in its second quarter.
Earlier this month, Delta Air Lines Inc,the second largest U.S. airline by passenger traffic, also forecast its passenger unit revenue to rise 1-3 percent in the second quarter, citing improving demand and average fares.
U.S. carriers have struggled to mark positive increases in unit revenue as cheaper fares and tougher competition have pummeled the industry.
The budget airline's operating expenses increased 8.8 percent to $4.23 billion, partly due to higher fuel costs and pay increases from amended union contracts.
Southwest's unit costs, excluding fuel, oil expense and some items, increased 6.9 percent in the quarter and the company expects the metric to increase by about six percent in the current quarter.
"Near-term cost pressures are very much an industry concern," Cowen & Co's Becker said.
While more people booked travel on Southwest in the first quarter, fares on average declined 2.6 percent.
The company said its net income fell to $351 million, or 57 cents per share, in the quarter, from $513 million, or 79 cents per share, a year earlier.
Excluding items, the company earned 61 cents per share, compared with estimates of 63 cents, according to Thomson Reuters I/B/E/S.
Operating revenue rose 1.2 percent to $4.88 billion.
Up to Wednesday's close, shares of the company had risen 14.3 percent this year. (Reporting by Arunima Banerjee in Bengaluru; Editing by Sriraj Kalluvila and Arun Koyyur)