Airline Stocks Rally on Hopes of Shutdown Deal, Shaking Off FAA Flight Cuts
Major carriers like United, American, and Delta surged over 5% on Thursday, reversing earlier losses as investors bet on a swift end to the government shutdown causing FAA staffing shortages.
Shares of major U.S. airlines rallied sharply on Thursday, brushing aside a looming threat of widespread flight cancellations as investor optimism grew that Washington lawmakers are nearing a deal to end the longest government shutdown in U.S. history.
The Federal Aviation Administration confirmed its plan this week to slash flights by 10% at 40 of the nation's busiest airports starting Friday, a drastic measure prompted by severe air traffic controller shortages. The news had sent airline stocks tumbling earlier in the week, with carriers like American Airlines, Delta Air Lines, and United Airlines falling between 2.5% and 2.9% on Tuesday. However, sentiment reversed dramatically in Thursday's trading session.
United Airlines (UAL) closed up 6.48%, while American Airlines (AAL) gained 6.09% and Delta Air Lines (DAL) climbed 5.19%. The rally reflects a broader market bet that the root cause of the FAA's staffing crisis—the government shutdown—may soon be resolved. A bipartisan group of senators is reportedly engaged in discussions aimed at funding the government, sparking hopes that the mandated flight reductions will be short-lived or averted entirely.
"We're closer to the end than the beginning," Senate Majority Leader John Thune said, fueling investor confidence despite another failed attempt to advance a funding bill on Tuesday.
The FAA's directive was a direct response to what the agency called a critical shortage of air traffic controllers, whose ranks have been strained by the ongoing shutdown. The planned cuts, set to take effect on November 7, were poised to cause significant disruption to the nation's air travel network just as the busy holiday season approaches.
Aviation analytics firm Cirium estimated the 10% reduction could impact as many as 1,800 flights and more than 268,000 airline seats daily, creating logistical chaos for both travelers and carriers. According to the U.S. Travel Association, the shutdown has already inflicted over $4 billion in economic losses on the travel industry.
In a statement, the FAA emphasized that the move was necessary to "ensure the safety of the traveling public," highlighting the operational strain on the system. The list of 40 affected airports includes major hubs across the country, ratcheting up pressure on both airlines and lawmakers.
The market's sharp reversal suggests investors are looking past the immediate operational headaches and focusing on the bigger picture: a potential return to normalcy. If a deal is reached to reopen the government, the FAA's primary reason for the flight cuts would be resolved, allowing for a swift resumption of normal schedules. However, the situation remains fluid. Should the political impasse in Washington continue, airlines could see a material impact on fourth-quarter revenues and be forced to make significant adjustments to their flight schedules, potentially stranding thousands of passengers and creating a ripple effect across the economy.