Why United Airlines’ huge bet on Newark airport is not paying off

On a good day, passengers flying into Newark airport in New Jersey can catch a glimpse of the Statue of Liberty. On a bad day they have to sleep on the floor.

No company’s fortunes are more entwined with the airport than United Airlines, which accounts for 57 per cent of passengers. Roughly an hour from Manhattan, Newark is a central pillar of chief executive Scott Kirby’s plan to use bigger, more efficient jets to grow the carrier. It is also United’s transatlantic gateway at a time when international travel is rebounding sharply from the coronavirus pandemic.

But last month, the airport was the source of operational difficulties, which undercut Kirby’s claim that United was better prepared for the busy summer season than rivals. Kirby has since said the airline will operate fewer flights from Newark to minimise disruption, something that analysts fear could create an opening for competitors.

“It hurts,” said Savanthi Syth, an analyst at Raymond James. “It’s good, high-quality demand that you want to be able to meet. It’s never a good thing if you have to cut down capacity. The risk is that you cut it, and someone backfills.”

The meltdown at the end of June was caused by thunderstorms, but Kirby was quick to blame understaffed air traffic control towers for failing to deal with weather that airlines were once able to take in their stride.

“Airlines can plan for things like hurricanes, sub-zero temperatures and snowstorms,” he wrote in a memo to employees on July 1. “United has never seen an extended limited operating environment like the one we saw this past week at Newark.”

Passengers at Newark camped out on chairs, tables and luggage carts, while the disruption at the airline’s hub had a knock-on effect on services departing from and arriving at other airports. In total, 3,300 United flights were cancelled over a seven-day period and 7,800 were delayed.

Kirby is likely to face questions about the disruption from analysts on Thursday during a call to discuss its performance in the second quarter. Wall Street expects the company to report adjusted earnings of $4.04 per share on $13.9bn in revenue after the market closes on Wednesday.

New York’s airspace is among the world’s most congested, and air traffic control services operating under the jurisdiction of the US Federal Aviation Administration in the region are staffed at 54 per cent of the agency’s target.

Newark has 40 departures scheduled per hour, a figure that was reduced by up to 75 per cent between June 25 and June 27, Kirby said in the memo. Compounding the problem, understaffing at Canada’s air traffic control operation prevented United pilots from flying north, then west through Canadian airspace to dodge the storms.

“Airlines, including United, simply aren’t designed to have their largest hub have its capacity severely limited for four straight days,” Kirby said in the memo. “The reality is that [Newark] can’t function under thunderstorm conditions unless there are departure routes to the west.”

The disruption paled in comparison to the operational catastrophe at Southwest Airlines in December, which resulted in almost 17,000 cancellations and 2mn stranded passengers. But United had boasted of its preparedness, telling investors in April it was “built to run well and recover fast”, and “ahead of the curve” for the summer.

It also calls into question United’s wager on Newark, the airline’s largest hub for international departures and arrivals. It went all-in on the airport in October when it consolidated its New York-area operations there after pulling out of John F. Kennedy International Airport for the second time in eight years.

United had tried in 2021 to restore some services at JFK to attract business customers on lucrative routes to and from California, but performed a U-turn after concluding it did not have enough clout to complete with rivals.

In addition to its international importance to United — which has one of the largest global networks of the US carriers — Newark is a plank of “United Next”, Kirby’s two-year-old plan to increase capacity in a cost-effective way by replacing smaller regional jets with larger planes.

United ordered 270 narrow-body jets in June 2021 and signed contracts for another 100 wide-bodies in December. The bigger planes should allow the airline to carry more passengers without adding more flights.

At the time, United said that share of Newark-based flights being flown by the larger planes would grow from 55 per cent in 2019 to 70 per cent by 2026. The airline claimed the change would increase capacity “for years to come” while “driving international growth, by connecting more customers from US cities to Newark/NYC for their international flights”.

The airline is in “a transition phase”, said Fitch Ratings analyst Joseph Rohlena. While it has committed to spending “quite a bit” to expand its fleet, it has not yet “started to see the bulk of the benefit”.

Meanwhile, some United staff have suggested it is disingenuous to put all of the blame on understaffed air traffic controller services. Passengers had to wait in long lines at airport counters. And some crew members could not contact the airline’s scheduling department to be reassigned to flights that should have been able to take off, according to Garth Thompson, a captain and chair of the United unit of the Air Line Pilots Association.

Pilots reached a tentative deal with United on Saturday that raises wages up to 40 per cent over four years and offers more protection for pilots’ days off, which will now go to union members for a vote.

“Certainly capacity constraints and the FAA controller issue are a big factor, along with the weather, but we need to do a better job of responding to foreseeable events,” said Thompson. “They are going to have to make Newark work better for this to be the crown jewel of the Atlantic.”

Despite the difficulties, United is still trying to capitalise on rebounding international travel from airports on the west coast. On Tuesday, it announced new routes from California-based airports to the Philippines and New Zealand while increasing service to other Pacific destinations.

However, like other airlines, its expansion plans have been hampered by delays at Boeing and Airbus, which are struggling to meet airlines’ demands for jets.

“It’s a little frustrating, to be candid,” said Patrick Quayle, United’s senior vice-president of global network planning. When orders from both of the main plane-makers are delayed “it does have a direct impact as to our capacity plans and how we’re deploying our fleet globally”.