Last month, Alaska Air (ALK 0.51%) dramatically boosted its second-quarter revenue forecast, as a sharp rebound in air travel demand led to packed planes and surging airfares. As a result, the carrier projected that it would post a double-digit adjusted pre-tax margin for the quarter, despite soaring fuel costs.

On Thursday, the Alaska Airlines parent reported that costs increased even more than expected in Q2. Nevertheless, it posted a strong earnings beat, as revenue growth continued to accelerate.

Record revenue offsets cost pressures

Alaska Air's revenue reached a new record of $2.66 billion last quarter -- up 74% year over year and 16% higher than Q2 2019. Alaska achieved this revenue growth despite operating at less capacity than it did before the COVID-19 pandemic. Unit revenue skyrocketed 26% compared to Q2 2019.

These results easily beat Alaska's June guidance, which called for revenue to grow 12% to 14% over 2019 levels, not to mention its original guidance of 5% to 8% top-line growth.

On the flip side, Alaska Air's non-fuel unit costs rose 19% relative to Q2 2019. That touched the high end of the company's forecast. Moreover, economic fuel costs skyrocketed to $3.76 per gallon, above Alaska's most recent forecast of $3.65 to $3.68 and much higher than its initial outlook of $3.25 to $3.30.

Alaska Airlines jet flying over clouds.

Image source: Alaska Airlines.

Fortunately, Alaska's incredible revenue growth more than made up for higher costs. The fifth-largest U.S. airline recorded an excellent 14% adjusted pre-tax margin for Q2. Adjusted earnings per share (EPS) reached $2.19, crushing the average analyst estimate of $1.97. This also surpassed the company's EPS of $2.17 for Q2 2019, even though Alaska paid just $2.27 per gallon for fuel then.

The outlook is solid

Strong demand trends are continuing into the third quarter. Alaska currently estimates that revenue will jump 16% to 19% compared to third-quarter 2019 on 5% to 8% less capacity.

Of course, Alaska's cost pressures are continuing, too. The carrier expects that non-fuel unit costs will rise 16% to 19% over Q3 2019 this quarter, while economic fuel costs tick up to between $3.79 and $3.89 per gallon.

Still, this guidance implies EPS roughly in line with the results Alaska Air just reported for the second quarter. That would exceed the current analyst consensus of $1.97.

For the full year, Alaska is sticking with its previous forecast for an adjusted pre-tax margin between 6% and 9%. That would be consistent with anything from breakeven results to another double-digit pre-tax margin in the fourth quarter, reflecting the highly volatile macroeconomic environment.

A great value stock

Despite the big earnings beat, Alaska Air stock declined slightly on Thursday. It was likely dragged down by negative investor sentiment after airline giants American Airlines and United Airlines missed earnings expectations.

This makes Alaska Air a great stock to buy after earnings. Shares currently trade for around 10 times the company's likely 2022 EPS. Moreover, Alaska is poised for strong earnings growth over the next few years as it completes its multiyear transition back to an all-Boeing 737 mainline fleet and returns to pre-pandemic productivity levels.

Finally, Alaska Air will be permitted to resume returning cash to shareholders in October. Given that the company ended last quarter with $3.4 billion of cash and investments -- and just $2.3 billion of debt -- shareholders could be in line for a meaningful windfall next year.