What happened
Alaska Air Group (ALK -1.78%) delivered an estimates-beating second quarter early this week, yet its share price dipped in response anyway.
This was compounded by the underperformance of a major peer several days later. As a result, by late Thursday after market hours Alaska Air's share price had fallen almost 13% week to date, according to data compiled by S&P Global Market Intelligence.
So what
Savvy investors trade on future potential rather than trailing performance, and that was the issue with Alaska Air's second-quarter performance. The company beat the consensus analyst estimates for both revenue and bottom-line profitability for the period, but it offered only tepid revenue guidance for its current (third) quarter -- it believes that metric will rise by only 3% year over year at best.
What's happening? Yes, the summer tourism season is busy and prosperous for more than a few airlines and other businesses involved in the travel trade. Yet plane ticket prices have dipped because of a decline in fuel prices during the second quarter. Fuel is always a major cost item for airlines; the lower rates give airlines that compete on price the scope to shave their prices.
So life isn't necessarily easy for airlines these days. This was demonstrated by Alaska Air's bigger peer, Southwest Airlines when that company unveiled its own second-quarter figures on Thursday. That company had a mixed quarter, with revenue slightly topping prognosticator forecasts but net income missing by a whisker.
Now what
As with Alaska Air, Southwest proffered uninspiring guidance, with several financial and operational metrics anticipated to develop in the wrong direction in the third quarter. Southwest is seen by many as a bellwether airline stock, so the general investor mood on the sector is somewhat gloomy at the moment.
