What happened

Hawaiian Holdings (HA -0.31%), the parent of Hawaiian Airlines, reported a smaller-than-expected loss in the third quarter, but in an environment of raised expectations it was not enough to cause the stock to gain altitude. Shares fell as much as 10% on Wednesday morning as investors continue to wait on an international recovery.

So what

Late Tuesday, Hawaiian reported a third-quarter loss of $0.15 per share on revenue of $741.15 million, within range of the $0.18 loss on $746 million in sales that analysts had been expecting. Similar to what other airlines have reported, demand held up well in the recently completed quarter despite fears of a slowing economy.

CEO Peter Ingram issued a statement saying, "We enjoyed strong demand for travel to Hawaiʻi this summer, led by our North America routes, and are encouraged to see these trends continue into the fall, while the relaxation of travel restrictions in Japan sets the stage for the full restoration of our network in the months ahead."

Hawaiian ended the quarter with $1.4 billion in cash and $1.7 billion in further liquidity, giving it plenty of flexibility to navigate any potential headwinds.

Now what

There was nothing alarming in these results, but as with the post-earnings decline by JetBlue Airways (NASDAQ: JBLU) a day earlier, Hawaiian seemingly was done in by soaring expectations. Rivals including United Airlines Holdings (NASDAQ: UAL) and Delta Air Lines (NYSE: DAL) reported solid beats in the last few weeks, raising hopes among airline investors.

For Hawaiian, the key for investors to watch here is Japan. Trans-Pacific traffic is vital to the airline's success, and as Ingram noted, Japan is just beginning to reopen post-pandemic. With fierce inter-island and U.S. West Coast competition, Hawaiian will need strong momentum from Japan in the quarters to come to fly higher from here.