By Rajesh Kumar Singh

CHICAGO, May 23 (Reuters) - Newark Liberty International Airport is one of the largest hubs of United Airlines UAL.O, and the congested airport is also the Chicago-based carrier's biggest operational challenge.

The company told 1.5 million customers in a note on Thursday that congestion at Newark has eased since it reduced flights there. United also backed the U.S. Federal Aviation Administration's decision to limit flights there, calling it "good news" for its customers.

But reduced flights are expected to hurt the company's revenue and drive up operating costs.

United CEO Scott Kirby has acknowledged the disruptions at Newark will hurt, even though the carrier has been using bigger jets to minimize the revenue hit.

The airline has few viable alternative airports in the Northeastern U.S., according to analysts and company officials, so there is pressure to find a way to make Newark work, and United has some ideas.

It is also considering options such as increasing seats on flights at New York City's LaGuardia Airport. But LaGuardia is slot-controlled, making it difficult to add flights there. Company executives say they plan to deploy Boeing BA.N 737-800s at LaGuardia in place of Airbus AIR.PA A320s to fly more passengers, but swapping aircraft will require changes to crew schedules which cannot happen until July.

Also, United has been seeking a way to return to New York's JFK airport. Analysts say this can relieve some traffic in and out of Newark, particularly flights to Los Angeles and San Francisco.

But capacity at JFK is constrained, so United needs to acquire takeoff and landing slots at the airport, where the carrier stopped service in 2022 after failing to acquire sufficient slots to effectively compete.

Delta Air Lines DAL.N, JetBlue JBLU.O and American Airlines AAL.O are the top three U.S. carriers at JFK, according to aviation analytics company Cirium. To regain a foothold, United must negotiate with the FAA or acquire slots from one of those three.

United is negotiating a partnership with JetBlue, Reuters reported last month. This could ease United's return to JFK.

Still, JFK would serve as a secondary airport for United, said Henry Harteveldt, founder of travel consultancy Atmosphere Research Group.

"Newark would remain United's primary New York metro market hub," he said.

The New Jersey airport feeds traffic to United's domestic and international flights. The company has an option to build its hub at Washington Dulles for domestic and international connections, easing its strain at Newark.

But the Dulles market lacks Newark's revenue potential, said Robert Mann, a former airline executive who runs a consulting firm. Network realignment is also risky, as a misstep can have an outsize impact on revenue, he added.

"Newark is a much better location for a hub from a demand perspective, from a revenue perspective." Mann said. "I would figure out how to make Newark work."

Company officials say Newark is "critical" in the airline's network as United not only uses it to serve international destinations, but also to transport a lot of international cargo.

FLIGHT CUTS

United responded to a Reuters request for comment by saying the FAA's decision to limit the number of flights at Newark would help it "safely and reliably operate the flights that remain on the schedule."

On Thursday, the airline told customers it had canceled less than 1% of its flights out of Newark on eight of the past 11 days. "We'll operate fewer daily flights this summer compared to last year," wrote Jon Gooda, vice president for United's Newark hub.

Analysts at Seaport Research Partners estimate Newark accounts for 16.5% of United's departures and 22% of its total capacity. The brokerage firm has cut its 2025 earnings forecast for the company by 10% due to the flight reductions.

This is not the first time a disruption at Newark has dented United's earnings. In the second quarter of 2023, flight delays and cancellations shaved 1 percentage point from margins.

At that time, CEO Kirby was widely criticized for taking a private jet out of the New York area while thousands of United passengers were stranded.

CAMPAIGN FOR SLOT-CONTROLS

United has been campaigning to return Newark to a slot-controlled airport, similar to LaGuardia and JFK. That would require airlines to acquire slots to add flights.

The FAA lifted slot controls at the airport in 2016 to promote competition. United opposed the change as the restriction allowed it to maintain its dominance at Newark.

United says Newark's performance has worsened since slot control ended.

"It was a mistake to de-slot the airport in 2016 -- every single data point says so," Kirby said this month.

(Reporting by Rajesh Kumar Singh; Additional reporting by Doyinsola Oladipo in New York; Editing by David Gregorio)

((rajeshkumar.singh@thomsonreuters.com; +1-313-484-5370; Reuters Messaging: rajeshkumar.singh.thomsonreuters.com@reuters.net))