Alaska Air Posts Record Quarterly Revenue. Why Airline Stocks Are Tumbling.

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It’s been a red hot summer for travel and for airline stocks. But the inevitable turbulence has arrived in the slightly surprising form of

Alaska Air
’s
earnings.

The carrier’s update appears to have put the wider sector under pressure, with America’s major airlines plunging into the red Tuesday. 

Alaska Air
’s
(ticker: ALK) earnings weren’t bad at all. The company, which owns Alaska Airlines and Horizon Air, even posted record quarterly revenue of $2.84 billion and beat earnings estimates.

But it’s Alaska’s third-quarter guidance that seems to be sparking the sector’s losses. The company is forecasting revenue growth to be anywhere between flat and 3% versus 2022–a deceleration from the 7% growth it reported in the second quarter.

Alaska stock tumbled 11% in early trading, while

JetBlue Airways

(JBLU) fell 5.5%,

Southwest Airlines

(LUV) declined 5.8% and

Frontier Group

(ULCC) was 6% down.

Perhaps Alaska’s third-quarter guidance signals the softening in travel demand that investors and Wall Street have long been concerned about. Analysts’ expectations for the full-year have sat below the industry’s own forecasts for some months now, although the gap has been shrinking as the summer’s bumper demand has become clear.

But it’s not necessarily time to panic. Domestic travel rebounded strongly last summer and into the second half of 2022, so the comparable periods were always going to be tougher.

Alaska, for example, is still likely to set a new record for quarterly revenue in the third quarter. It’s hardly a slump in demand, yet.

The three largest and most internationally-exposed airlines–

United Airlines

(UAL),

American Airlines

(AAL) and

Delta Air Lines

(DAL)–should be less impacted by a potential domestic slowdown, or normalization. That’s being reflected in the stock market–the trio are down between 2.8% and 4%, outperforming the larger declines of the low-cost, domestic-focused airlines.

Southwest’s earnings before the open Thursday will reveal more about how widespread a potential domestic slowdown really is.

Write to Callum Keown at callum.keown@barrons.com