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Southwest Airlines has become known for its ability to enter new markets, driving down prices and spiking demand. In Hawaii, this phenomenon, often referred to as the “Southwest effect,” has led to a significant increase in the number of interisland travelers and a decrease in the cost of interisland flights.
Andrew Watterson, the Chief Operating Officer of Southwest, shared in a conversation with the Honolulu Star-Advertiser to celebrate the airline’s fifth anniversary in Hawaii, “The airline industry and the people of Hawaii have faced numerous challenges over the past five years. Despite this, we’re proud to have continued serving this market. We could have easily backed down, but we chose to persevere.”
Watterson highlighted, “On the routes we operate between the islands, we’ve seen a 24% increase in daily demand and a 42% reduction in fares. We take great pride in making air travel more accessible for the residents of Hawaii. We’re incredibly thankful for the warm welcome we’ve received in Hawaii, offering an alternative that has truly made an impact.”
After entering the Hawaii market on March 17, 2019, Southwest offered a competitive alternative to Hawaiian Airlines, which had dominated the interisland market since the exit of Mesa Air’s go! Airlines in 2014.
The statistics Watterson referred to are sourced from the U.S. Department of Transportation, comparing the interisland market from the year ending March 31, 2019, to the year ending September 30, 2023.
Southwest’s introduction to Hawaii was well-received by consumers who appreciated the airline for its affordable all-economy seating, commitment to transparency with no hidden fees, and policies against baggage and change fees. Over the last five years, Southwest has transported over 2.7 million interisland bags and approximately 5 million bags to and from the islands at no extra cost. In the previous year alone, the airline carried 6,388 surfboards and 4,007 pets between the islands for a nominal fee of $39.
Kelly Knox, a corporate responsibility advisor for Southwest, mentioned that the airline has contributed $3.2 million in cash and in-kind donations to various charitable organizations throughout Hawaii.
“We’re dedicated to supporting causes that resonate deeply with the people of Hawaii, aligning our efforts with what matters most across the islands,” Knox stated.
Southwest has also invested in its employees in Hawaii, now numbering 680, with the opening of a new command center last year. This is part of a nearly $40 million investment in infrastructure to support its operations throughout the state.
Jack Richards, president and CEO of Pleasant Holidays, and Keith Vieira, principal of KV & Associates, Hospitality Consulting, acknowledged Southwest’s positive impact on Hawaii’s tourism industry by adding flights and enhancing marketing efforts.
“The competition introduced by Southwest has been beneficial. It has increased the number of available seats and choices for travelers, which is always a plus,” Richards commented.
However, some residents of Hawaii view Southwest’s low fares as a challenge to the goal of sustainable tourism, which aims to increase tourism through spending rather than sheer numbers of arrivals.
The increased competition, while beneficial for consumers, often poses challenges for competing airlines. The entry of go! Airlines into the Hawaii market in 2006 is cited as a contributing factor to the closure of Aloha Airlines in 2008, resulting in the largest mass layoff in the state’s history at that time.
Brad DiFiore, managing director for Ailevon Pacific Aviation Consulting, noted that while Southwest’s presence has been advantageous for passengers and the public, it has presented challenges for Hawaiian Airlines, especially in light of the COVID-19 pandemic. “If Hawaiian had faced any of these crises individually, it might have been in a better position. However, the airline has been hit hard by several significant challenges in a short period,” DiFiore explained.
In December, it was announced that Alaska Airlines had agreed to purchase Hawaiian for $1.9 billion, a deal that includes $900 million of Hawaiian’s debt. This acquisition is still pending approval from the U.S. Department of Justice.
Vieira remarked, “A strong Hawaiian Airlines benefits Hawaii, but that doesn’t exclude the presence of competition. Competition drives improvement as it forces companies to be vigilant about pricing, availability, and service.”
Hawaiian Airlines has chosen not to comment on its fare competition with Southwest. However, during Hawaiian’s latest investor earnings call, Brent Overbeek, senior vice president of revenue management and network planning at Hawaiian Airlines, said, “We continue to compete successfully on our neighbor island routes.”
Overbeek noted that the average fare has progressively improved year over year, with the neighbor island entity’s average fare reaching $60 in December, the highest in 16 months. He also mentioned that according to Department of Transportation statistics for the third quarter of 2023, Southwest’s interisland load factors were at 47%, compared to Hawaiian’s 74%.
Since its arrival in Hawaii, Southwest has navigated challenges including government shutdowns, the 2019 grounding of Boeing 737 MAX aircraft, the COVID-19 pandemic, and natural disasters like floods, hurricanes, the Kilauea eruption on Hawaii island, and the recent devastating Maui wildfires on August 8, 2023. These events led to a significant decrease in visitor demand, which has yet to fully recover.
Watterson emphasized, “Adapting to global challenges, whether they be pandemics, infrastructure issues, or natural disasters, is crucial. We’ve adjusted our service patterns and facilities in response to these challenges.”
In response to market demands, Southwest has scaled back its trans-Pacific schedule to Hawaii while increasing interisland capacity. The airline has also introduced more seasonal variations in its Hawaii routes, with some operating year-round and others only during specific seasons or days.
DiFiore observed, “Adjusting schedules seasonally is a sensible response to market demands and is a common practice elsewhere.”
A recent challenge for Southwest has been a shortage of aircraft, a problem Watterson mentioned is affecting most airlines.
“Both Boeing and Airbus are facing difficulties in producing and delivering the necessary aircraft. This has resulted in the grounding of certain Airbus models and a reduction in Boeing’s production,” he explained.
Alaska Airlines CEO Ben Minicucci also highlighted during a January 25 earnings call that about one-third of the airline’s January capacity was impacted by the grounding of the 737 MAX 9.
“Additionally, we anticipate that several aircraft deliveries might be delayed, which could further influence our capacity plans for the year, initially expected to increase by 3% to 5% over 2023 levels,” Minicucci stated.
Similarly, Hawaiian has had between two and four Airbus A321neos out of service in recent weeks but adjusted its schedule proactively last year to ensure sufficient aircraft for its operations. Hawaiian anticipates having all 18 A321neos in service by May and expects its near-term 787 Boeing deliveries to proceed as scheduled.
DiFiore suggested that the scarcity of aircraft might lead to a situation where “the pain is spread across the networks,” resulting in slower growth rather than cutbacks.
One of Southwest’s future plans in Hawaii was to introduce the MAX 7 aircraft, which, with 150 seats, is ideally suited for interisland service and has the range to connect Hawaii with distant locations like Denver.
Southwest has now adjusted its expectations, assuming no 737-7 aircraft deliveries this year, based on the current certification status with the Federal Aviation Administration.
The airline anticipates fewer overall aircraft deliveries from Boeing and mentioned in a recent regulatory filing that Boeing expects to deliver 46 737-8 planes this year, down from the previously anticipated 79 737 Max aircraft deliveries.
Following discussions on responding to aircraft scarcity by reducing capacity and reevaluating its full-year financial outlook, Southwest’s shares dropped nearly 15% to $28.76 a share on Tuesday. The shares closed at $28.35 on Friday.
Southwest has yet to announce schedule revisions for specific airports. Its next earnings report is expected to be released on April 25.
The Associated Press contributed to this story.