American Airlines (AAL) and Southwest Airlines (LUV) both topped third quarter earnings estimates and provided upbeat full-year outlooks. However, American reported a $149 million quarterly net loss and Southwest saw falling profit for its last quarter.

Stephen Trent, Citi managing director, joins Catalysts to discuss the earnings results and what they signal about the broader airline sector.

Specifically looking at Southwest, Trent tells Yahoo Finance, "One of the things that stood out to me was the 4Q ex-fuel seat mile cost guide. That did look heavier than we were anticipating. And I would say that's at least partially behind the price action this morning."

He notes that the industry as a whole is seeing seat mile cost pressure, especially budget airlines. He explains. "Everybody's labor is going up. Nobody can get equipment in a timely manner from the manufacturers. And United States does not have enough air traffic control capability, which is a primarily Northeast and Florida thing, but not only those places."

Thus, with these pressures, airlines have been struggling to provide lower prices to consumers, which has particularly weighed on discount airlines like Southwest. Trent believes that "some sort of rationalization from a capacity perspective" could shift the sector back to a more stable state.

He adds, "We need to get to a point where there is better equilibrium between unit revenue and ex-fuel unit cost." To that end, he believes that network airlines have "a much easier path ahead" than budget airlines.

To watch more expert insights and analysis on the latest market action, check out more Catalysts here.

This post was written by Melanie Riehl