What happened

Hawaiian Holdings (NASDAQ:HA) -- parent company of Hawaiian Airlines -- reported its second-quarter 2018 earnings last night. This morning, its stock popped 12% in response. While it's retraced a bit since, Hawaiian Holdings stock is still up a healthy 9.2% as of 1:10 p.m. EDT.

Earnings per share of $1.56 ($1.44 "adjusted" for one-time items) easily topped analyst expectations for profits of $1.26. This was despite sales falling just short of expectations for $717.8 million.

A Hawaiian Airlines plane on the tarmac at an airport.

Rapidly rising fuel and labor costs fail to ground Hawaiian Holdings stock. Image source: Hawaiian Airlines.

So what

Hawaiian Holdings reported sales of $715.4 million for the quarter, up 7% from last year's Q2. Operating profits declined due to large rises in costs for labor (up 11%), maintenance (up 16%), and fuel (up 49%).

However, a big decrease in taxes thanks to tax reform helped to offset these rising costs, lifting net income 9%. And overall, as CEO Peter Ingram pointed out, Hawaiian "generated more revenue and carried more guests than in any second quarter in our history by executing our plan and running a safe and reliable airline." 

Now what

Looking ahead to Q3, Hawaiian advised that it plans to grow "available seat miles" (ASM -- or in other words, capacity) 7.5% to 9.5%, and says revenue per ASM is likely to remain roughly stable, perhaps up or down by 1.5% in comparison to last year's Q3. Costs are expected to rise even faster, though, between 0.5% and 3.5%, excluding fuel costs. Fuel costs will rise between 5% and 7%, which could make further earnings gains difficult -- and not just in Q3.

For the whole year, Hawaiian is looking for a 5.5% to 7.5% increase in ASM, with costs rising between 1% and 3% per ASM, excluding fuel, and with fuel costs alone rising 4% to 6% relative to last year.

Whether Hawaiian will be able to hold onto today's gains as investors fully digest this less optimistic news remains to be seen.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.