What happened

American Airlines Group (AAL 1.70%) expects third-quarter revenue to come in ahead of guidance, a fresh sign that demand for travel is holding up well despite tough economic conditions.

The news provides a lift to American and rivals Delta Air Lines (DAL 0.46%) and United Airlines Holdings (UAL -0.16%), sending shares of all three airlines up as much as 5% before new worries about a slowdown ahead ate into those gains.

So what

Airline investors had a miserable 2020 due to the pandemic, and these stocks continued to be volatile throughout 2021 and into 2022. But investors had high hopes that a rebound in demand would help the airlines to normalize operations and regain altitude as the year went on.

Summer demand has been strong, but with vacation season over, investors have been worried about whether travel will trail off into the fall. The Federal Reserve's fight against inflation is only complicating the situation by slowing economic activity. When times get tough, airfare is an obvious place to cut back.

But American doesn't appear to be seeing any evidence to suggest a slowdown. The airline in a regulatory filing said it expects third-quarter revenue to be up 13% compared to 2019, slightly better than its prior outlook for up 12%. Pre-tax margin is expected to be 4.5%, ahead of previous guidance for up to 4%.

As expected, costs are also up compared to 2019. And American's flying capacity is not yet to pre-COVID levels, coming in 9.6% lower than the same three months of 2019.

American is the first major airline to offer color concerning the quarter ending Sept. 30. Although the numbers are backwards looking, they do offer some reassurance that travel demand didn't dry up after Labor Day.

Delta could also be getting a boost from its investment in air taxi start-up Joby Aviation. Delta and Joby intend to coordinate schedules in major markets as soon as 2024, providing Delta customers a way to fly over traffic congestion on the way home from the airport.

Now what

American's update was good news, but investors are likely to be more interested in what these carriers have to say about future demand. We'll get the first sense of that on Thursday, when Delta is scheduled to release its results. But the reality is that airlines only have limited visibility about where demand will be heading into 2023.

On Tuesday, the rally could not be sustained. Airline stocks fell back to Earth along with broader markets on news that the International Monetary Fund cut its growth forecast for 2023, a fresh reminder that issues ranging from the Fed's actions in the U.S., the ongoing war in Europe, and China's slowdown will continue to weigh on economies for the foreseeable future.

Whatever happened in the recently completed quarter, investors should expect continued volatility from airline stocks until there is more certainty about what lies ahead for the global economy.