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Airlines continue to battle flight cancellations as the summer travel season heats up.
Daniel Slim/AFP/Getty Images
As the travel-heavy July 4 holiday weekend fast approaches, airlines continue to battle flight cancellations, putting further pressure on their stock prices.
Shares of most major carriers fell on Thursday, but to varying degrees.
United Airlines Holdings
(symbol: UAL) on Thursday announced plans to cut 50 daily departures from Newark Liberty International Airport to “help minimize excessive delays and improve on-time performance” for all carriers, the company revealed.
The cut represents 12% of the airline’s schedule at Newark Airport, a major hub for United, only affects domestic flights and the airline is not exiting any markets. The stock fell 2.5% to $35.81 on Thursday.
Flight cancellations have become widespread across the industry. Steve Reynolds, CEO of Tripbam, which helps businesses monitor travel bookings, says “we’ve heard from multiple customers that cancellations are a problem.”
This is “beginning to have an impact on the resumption of business travel, as travelers are reluctant to pay a high fare for a stressful trip,” he adds.
At around 4 p.m. Thursday, the FlightAware website reported that there were 758 cancellations of flights within, to or from the United States, compared to 1,412 for all of Wednesday.
Bad weather and reduced staffing of flight controllers have been cited as reasons for disruptions to air travel. However, the shortage of pilots is the main driver behind the rise in flight cancellations, says longtime airline analyst Michael Derchin.
“You ended up with a perfect storm where there’s a huge shortage of pilots,” says Derchin, founder of Derchin Airline Research.
He points out that many senior pilots took early retirement earlier in the pandemic. Big airlines, he says, usually recruit pilots from smaller regional airlines, adding that this has “created a big shortage among regional airlines”.
At an investment conference last month, Andrew Nocella, United’s chief commercial officer, said he did not expect the driver shortage to be resolved in the short term.
“Retirement this year is around 1,800 pilots,” he said, adding that he expects that to increase and “stay at around 3,000 until the end of the decade. “.
That, in turn, creates “a significant gap in staffing for the next two or three years, which is really quite significant,” Nocella said.
The driver shortage is not limited to United, however. “The industry needs to bring staff and levels back to normal,” Nocella said.
During the
American Airlines Group
it is
(AAL) at the June 8 annual meeting of shareholders, CEO Robert Isom said the supply of new pilots was limited. There “has been an enormous number of retirements [during the pandemic], he said, adding that the pilot “then fails to make itself felt by regional carriers”. U.S. stocks fell 0.1% to $12.98 on Thursday.
South West Airlines
(LUV) was up slightly for the trading day, up around 0.7% at $35.94.
Regional airlines are a crucial part of the national air network, connecting small airports to large airports.
Still, “what gets by the wayside are the small towns,” Derchin says. He pointed to American’s recent announcement that it will discontinue service in four of those markets: Islip, NY; Ithaca, NY; Toledo, Ohio and Dubuque, Iowa.
Shares of major US airlines have been hit hard this year. United is down around 18.2% so far this year through June 23, although that’s better than the S&P 500’s loss of around 21%.
Delta Airlines
(DAL) is down 24.4%,
South West Airlines
(LUV) is down 16.1% and American is down about 28%.
“I’ve never seen a group as oversold as airline stocks are now,” Derchin says.
With the specter of further flight disruptions this summer, investors should treat these stocks with caution.
Write to Lawrence C. Strauss at lawrence.strauss@barrons.com
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