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Alaska Air Group Inc. (ALK) - Get Alaska Air Group, Inc. Report said it will reduce planned capacity growth and guided toward a $140 million impact from a pilot contract that is currently being negotiated.

The fifth-largest U.S. carrier said that excluding items it earned $312 million or $2.51 a share in the second quarter. Analysts were looking for earnings of $2.52. Revenue was $2.1 billion, up 10%.

During the quarter, revenue per available seat mile grew 3.5% and Alaska produced an operating margin of 24.7%.

Looking ahead, the carrier guided toward full-year capacity growth of 8%, down from 8.5% previously, with cost per available seat mile up 1.5% in the quarter and 0.5% for the full year.

Additionally, in a footnote to its investor update, Alaska said that regarding its ongoing pilot contract talks, "Our position for arbitration will result in an estimated annual increase for the company of approximately $140 million." The figure is not included in the CASM guidance.

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In early trading on Wednesday, Alaska shares were down 3% to $84.76. The carrier's second-quarter earnings call is scheduled for 11:30 a.m. ET.

Cowen & Co. analyst Helane Becker wrote in a note that "Alaska reported 2Q17 results slightly below our estimate due to a higher than forecast tax rate; results were consistent with prior guidance.

"More importantly, Alaska stated management offered the pilots a contract that would cost $140 million annually vs our estimate of $145 million," Becker said.

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She said the reduction in planned capacity growth likely reflects "a challenging operating environment on the West Coast.

"If Alaska shares were to be weak on demand or pricing commentary, we would be a buyer of the shares," Becker said. "The company's plans have become less obtuse as management provided its estimate for a new pilot agreement." She has an outperform rating and a $103 price target.

Buckingham Research analyst Dan McKenzie said he maintains a buy rating and a $113 target price.

McKenzie said, "Wage inflation from a pilot deal likely impacts a 4Q17 consensus as does 14% growth and some incremental competitor growth at Seattle, which likely swings RASM negative.

"Hence our view that shares remain range-bound despite strong summer results," McKenzie wrote. However, he said, "Wage pressures are already understood by [Wall Street] and embedded in a consensus outlook for 2018."

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.