United Airlines' announcement to reduce domestic flights from Newark Liberty International Airport to resolve flight disruptions sent airline stocks tumbling Thursday, underperforming the broader market.
United told Reuters it would temporarily cut 50 daily departures, representing 12% of its 425 daily flights from Newark. The change will be effective July 1 and wouldn't result in the airline exiting airports across the country.
United executives said the Federal Aviation Administration (FAA) approved the temporary cut on June 17, citing Newark airport construction and air traffic control problems. In a previously unreported letter seen by Reuters, the agency said reducing flights could "help carriers manage delays during terminal and runway construction projects."
"After the last few weeks of irregular operations in Newark, caused by many factors including airport construction, we reached out to the FAA and received a waiver allowing us to temporarily adjust our schedule there for the remainder of the summer.
"Even though we have the planes, pilots, crews, and staff to support our Newark schedule, this waiver will allow us to remove about 50 daily departures which should help minimize excessive delays and improve on-time performance – not only for our customers, but for everyone flying through Newark," United's executive vice president and COO Jon Roitman wrote in a letter to staff.
United shares closed down 2.5% on the news. The S&P Airlines Industry Index fell as much as 3% but recovered some losses by the end of the cash session, closing down around 1%. The index has yet to recover from the virus pandemic and peaked in April 2021 and now approaches COVID lows.
Through mid-June, FlightAware data shows Newark had the second-most delays of any U.S. airport, behind Chicago Midway.
The airline industry has struggled with flight cancellations and delays due to many factors, including pilot and staffing shortages, weather-related issues, robust consumer demand, and, as Untied described above, infrastructure woes.
Last week, more than 10,000 flights were delayed or canceled, leaving travelers across the country furious and struck at airports, some for more than 24 hours. The spate of flight disruptions was enough for Transportation Secretary Pete Buttigieg to warn airlines to fix their problems ahead of the increased travel season associated with the Fourth of July holiday or face consequences.
Besides United, American Airlines, Southwest Airlines, Delta Air Lines, JetBlue Airways, Alaska Airlines, and Spirit Airlines have also reduced flights to address congestion. Some carriers are pulling flights from smaller airports.
United's CEO Scott Kirby pointed out a significant issue plaguing airlines: a pilot shortage. The industry is short a whopping 12,000 pilots, and Kirby said: "there's no quick fix." Pilots have staged protests due to being overworked.
So maybe once demand simmers down, flight disruptions abate, but that might not be until the second half of the year, according to Raymond James analyst Savanthi Syth. She pointed out a more significant pullback in demand will be seen in 1H23, followed by a recovery into 2024.