What happened

Alaska Air Group (ALK -4.06%) had a great quarter, but management's expectations for revenue growth from here fell short of what analysts had hoped for. Investors were disappointed, sending Alaska shares down about 12%.

So what

It has been a good year for airlines, with post-pandemic demand continuing to fill planes through the busy summer months. But historically this has been a cyclical industry, and investors are keeping a watchful eye on future demand to gauge whether rising inflation will cut into demand from here.

Alaska, like many of its peers that have already reported second-quarter results, beat expectations in the April-to-June period. Alaska reported adjusted earnings of $3 per share on revenue of $2.84 billion, topping the consensus estimate of $2.70 per share on $2.77 billion in sales.

"People are hungry to travel and our frontline employees are delivering the safe, reliable and caring experience that people expect when they fly with us," CEO Ben Minicucci said in a statement. "I'm so proud of our team for knocking it out of the park and delivering industry-leading operational and financial outcomes."

But Alaska said that although it expects its capacity to be up 10% to 13% year over year in the current quarter, it only expects total revenue to be flat to up 3% over the $2.8 billion reported in the same three months of 2022.

The issue is lower airfares. Despite rising inflation, airfares were down 19% year over year in June due to lower fuel costs. That's allowing lower-cost competitors to be more flexible on price, which is eating into what others can charge.

Now what

Yes, the revenue guidance was not as hoped, but it is hardly reason to press the panic button. Alaska Air could try to pack more passengers into the system to juice revenue, but as Minicucci notes the airline has instead chosen to "prioritize reliability," which he says is part of the "foundation for our long-term profitable growth."

Alaska has historically been one of the better investments in the notoriously difficult airline industry in part because of the company's conservative approach and focus on its customers. Tuesday is a tough day for long-term holders, but Alaska remains well positioned to outperform its peers over the long term.