These Airline Stocks Are Taking a Hit as Travel Disruptions Continue

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With the travel-heavy July 4th holiday weekend fast approaching, airlines continue to struggle with flight cancellations, putting additional pressure on their stock prices.

Shares of most of the major carriers declined on Thursday, though by varying amounts.

United Airlines Holdings

(ticker: UAL) on Thursday said it plans to cut 50 daily departures out of Newark Liberty International Airport to “help minimize excessive delays and improve on-time performance” for all carriers, the company disclosed.

The cut represents 12% of the airline’s schedule at Newark Airport, an important hub for United, only impacts domestic flights, and the airline isn’t exiting any markets. The stock declined 2.5% to $35.81 on Thursday.

Flight cancellations have been widespread across the industry. Steve Reynolds, CEO of Tripbam, which helps companies monitor travel bookings, says that “we have heard from several clients that cancellations are an issue.”

That is “starting to impact the business travel recovery as travelers are reluctant to pay a high fare for a stressful trip,” he adds.

As of about 4 p.m. Thursday, the website FlightAware reported that there were 758 flight cancellations within, into or out of the U.S., down from 1,412 for all of Wednesday.

Bad weather and reduced flight controller staffing levels have been cited as reasons for the air-travel disruptions. However, a pilot shortage is the key driver of the upswing in flight cancellations, says Michael Derchin, a longtime airline analyst.

“You ended up with a perfect storm where there’s a big shortage of pilots,” says Derchin, founder of Derchin Airline Research.

He points out that many senior pilots took early retirement earlier in the pandemic. The larger airlines, he says, typically recruit pilots from the smaller regional airlines, adding that it has “created a big shortage among the regional airlines.”

At an investing conference last month, Andrew Nocella, chief commercial officer at United, said he didn’t expect the pilot shortage to get fixed in the near term.

“Retirement this year is about 1,800 pilots,” he said, adding that he expects that to increase and “roughly stay at 3,000 through the end of the decade.”

That, in turn, creates “a significant gap in staffing for the next two or three years that is really quite material,” Nocella said.

The pilot shortage isn’t confined to United, however. “The industry has to get the staff and levels back to normal,” Nocella said.

During the

American Airlines Group
’s
(AAL) annual shareholders meeting on June 8, CEO Robert Isom said the supply of new pilots was constrained. There “has been a tremendous number of retirements [during the pandemic], he said, adding that the pilot “shortfall then is felt by regional carriers.” Shares of American declined 0.1% to $12.98 on Thursday.

Southwest Airlines

(LUV) edged slightly higher for the trading day, up about 0.7% to $35.94.

The regional airlines are a crucial piece in the nation’s aviation network, connecting smaller airports with larger airports.

Still, “What’s going by the wayside are the smaller cities,” says Derchin. He pointed to American’s recent announcement that it will discontinue service to four such markets—Islip, N.Y.; Ithaca, N.Y.; Toledo, Ohio, and Dubuque, Iowa.

The stocks of the major U.S. airlines have taken a big hit this year. United is down about 18.2% so far this year through June 23, though that’s better than the S&P 500’s loss of around 21%.

Delta Air Lines

(DAL) is off 24.4%,

Southwest Airlines

(LUV) is down 16.1%, and American has lost about 28%.

“I’ve never seen a group so oversold as the airline stocks are now,” says Derchin.

With the specter of more flight disruptions this summer, investors need to treat these stocks with caution.

Write to Lawrence C. Strauss at lawrence.strauss@barrons.com