The US Department of Transportation (DoT) in September sent a letter to the airline warning it to end what it said amounted to discrimination or risk being barred from flying to the US.
The DoT confirmed to AFP on Wednesday that state-owned Kuwait Airways had a day earlier informed authorities that it would eliminate the route.
Efforts to book a flight with the airline for later this month between the cities produced only an "Error Message."
It comes after Kuwait Airways' booking system would not sell a ticket to Israeli citizen Eldad Gatt in 2013.
Gatt complained to the DoT that he was unable to buy a ticket from John F. Kennedy Airport in New York to London Heathrow Airport through Kuwait Airways because the airline's online booking system prevented him from selecting Israel as his passport-issuing country.
The department investigated and initially rejected Gatt's discrimination complaint, according to a statement and letter provided by transportation officials. But when Gatt appealed the department's decision, the case was reopened and the department ultimately concluded that the airline had violated a different federal law than the one initially cited by Gatt.
"We considered Mr. Gatt's claim upon an alternative ground ... which holds that an 'air carrier or foreign air carrier may not subject a person, place, port, or type of traffic in foreign air transportation to unreasonable discrimination,'" Blane Workie, DoT's assistant general counsel for enforcement said in a letter to the airline.
By refusing to transport Israeli citizens to and from the US and a third country that accepts Israeli citizens, in this case the United Kingdom, the airline is in violation of the law, the letter said. "We expect (Kuwait Airways) to sell tickets to and transport Israeli citizens between the US and any third country where they are allowed to disembark based on the laws of that country," Workie said.
The DoT said this was the first time they received a complaint of this nature.
In response to US authorities, the airline explained that it's against the law in Kuwait to do business with any Israeli citizen or company, and that punishment for a violation could result in imprisonment and hard labor, according to the department.
"We do not find the interest of Kuwait in the enforcement of its laws in this case to be greater than the interest of the United States in the enforcement of its laws," the letter said. "It is our view that the US interest in providing nondiscriminatory access to air transportation to an individual traveling from the US to a third country that allows that individual's entry is greater than Kuwait's interest in applying its economic boycott of Israel."
The airline petitioned the US Court of Appeals for the Federal Circuit in Washington, DC on November 24, claiming they were not discriminating against any passengers on racial, nationalistic or religious grounds and that they accept any passenger with a passport that is valid in Kuwait.
The issue is still being discussed at court, but the airline decided to scrap its New York-London line despite it being profitable. However, the airline will continue operating flights between the US and Kuwait, flights on which it is not obligated to allow Israelis.
This isn't the first incident of an Israeli being bared from a Kuwait Airways flight: Iris Eliazarov, an Israeli living in Queens filed a lawsuit against Kuwait Airways after she was barred from boarding its flight out of Kennedy Airport because she was an Israeli citizen.