Alaska Air Group's (ALK) management struck a confident tone despite a weak Q1 and soft Q2 guidance, with internal initiatives progressing even as fuel prices rise, Morgan Stanley said Tuesday in a report.

Q1 results were hit by severe weather, civil unrest in Mexico and higher fuel costs, though management said earnings would have been "well above" the midpoint of its original guidance excluding these items, Morgan Stanley said. Q2 faces more than $3 a share of fuel-driven EPS pressure, the report said.

Alaska Air is working to offset higher jet-fuel costs, and management sees a potential path to 10% revenue growth in Q2 even with a two-point drag from Hawaiian Airlines, the report said.

Key updates included a renewal of the credit-card partnership with Bank of America, which is expected to generate $1 billion of incremental revenue by 2030 and lift margins this year and next, the report said.

Management reiterated its $10 EPS long-term target and said it expects to be operating at that earnings level in 2027, the report said.

Morgan Stanley lowered its price target on Alaska Air stock to $78 from $80 and maintained its overweight rating.

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