Forbes Magazine:—On March 4, 2019, Southwest Airlines began selling tickets to Hawaii from the US mainland. The long-awaited announcement included the four California cities Southwest will fly from, as expected (San Diego, San Jose, Sacramento and Oakland) and the destinations (Oahu, Maui, Lanai and The Big Island.) The announcement of service, which begins March 14, also included something else not everyone had been expecting—tickets as low as $49 each way.
The flight dates and prices came as welcome news to consumers, particularly those who snagged the $49 tickets. No doubt they provided some solace as well to those stranded by an East Coast snowstorm that cancelled 2500 flights, leaving frustrated passengers to dream of Hawaiian beaches.
Southwest Airlines on Monday (04MAR19) opened reservation for service to Hawaii, with the first flight scheduled in mid-March 2019 from Oakland. The airline will also operate inter-islands service from late-April 2019. Boeing 737-800 aircraft will operate these new routes.
Honolulu – Kahului eff 28APR19 4 daily
Honolulu – Kona eff 12MAY19 4 daily
Oakland – Honolulu eff 17MAR19 1 daily, 2 daily from 24MAR19
Oakland – Kahului eff 07APR19 1 daily, 2 daily from 10APR19
San Jose CA – Honolulu eff 05MAY19 1 daily
San Jose CA – Kahului eff 26MAY19 1 daily
In addition to launching service from Oakland and San Jose with fares as low as $49 and $79 each way to Hawaii (San Diego and Sacramento service will be announced later) Southwest said a little about what that service will look like. The airline says it will provide seating with an “industry-leading 32-inch seat pitch” on Hawaii flights, along with “Islands-inspired drinks and snacks,” WiFi enabled planes and “100% free inflight entertainment” including movies and live TV. Southwest has put up a dedicated web page for information at Southwest.com/Hawaii.
Although long expected, Southwest’s market entry was not so welcome at competitive airlines that already serve the Hawaiian market, including Alaska, Hawaiian, Delta, United and American.
For Southwest itself, the stock market reaction was not particularly positive, as the stock (LUV) declined -0.51 (-0.94%). But the new announcement had a much more pronounced effect on Hawaiian Air (HA:NASDAQ), which dropped $3.24 (-10.94%). Alaska Air (ALK), one of the volume leaders in flights to Hawaii from the West Coast, dropped -1.81 (-3.0%).
While it was a bad day for the stock market in general, the three other major US airlines flying to Hawaii also declined. American dropped -0.92 (2.66%), United dropped -2.61 (-3.0%) while Delta declined slightly, by -0.17 (-0.3%).
The competition problem for Hawaiian, although the airline has been established in the islands for 90 years, is obvious. (Not widely reported: Southwest is now offering four interisland flights a day between Honolulu and Kona on an introductory basis for $29 each way.)
The prospect of overcapacity and/or the dread “fare war” also potentially threatens revenues and profits at the other carriers.
The race to the bottom (err, the race to preserve market share in a low fare environment) has already begun. Southwest’s competitors have responded with fares from the US mainland to Hawaii for as low as $197 roundtrip.
For less than two hundred dollars, you can fly roundtrip from San Jose (SJC) or Oakland (Oak) to Kahului, Maui (OGG), or from Oakland to Honolulu (HNL). All three $197 round trips are Alaska Airlines Saver Fares, their version of Basic Economy, so luggage will be extra. (Southwest has promised to continue their “two bags fly free” policy to Hawaii.)
Similarly, American Airlines is offering non-stop roundtrips from Phoenix (PHX) or LAX to Kona (KOA) on the Big Island for $257, also in Basic Economy. Other low fares are available from Delta and Sun Country.
Low fares mean less revenues and lower profits, of course. In extreme cases the loser of such a fare war may end up drastically cutting back its presence in Hawaii or retreating from the islands altogether, as Allegiant did in 2017. Obviously, this is not a possibility for Hawaiian Air.
Less obviously, the new low fares may mean something else—damage to the elaborate loyalty and “elite” structure that the legacy airlines have built over the last 35 years. The Points Guy found some Southwest flights to Hawaii for $49 or 1,950 points each way, from San Jose and Oakland to Honolulu and Maui.
I compared a Southwest flight from Oakland to Honolulu on March 19 with an American Airlines flight on that date, which demanded 22,500 points (or $173) versus 1950 (or $49) for Southwest. Even discounting the fact that the Southwest fare is a promotional one, and any possible discrepancy in point value, this is a huge difference.
In some ways, it calls into question the value of loyalty to a particular frequent flyer program, which a number of analysts have pegged as actually more valuable than the airlines themselves.
Why kill yourself sitting on planes, paying to upgrade to “elite” status, making “mileage runs”, charging everything to one loyalty card, and so forth for overvalued points, when you can buy a roundtrip to Paradise for $200? Or, if Hawaii is your leisure destination, why not fly the legacy carriers network to a California city, fly Southwest to the islands, and preserve those presumably precious miles for next time?
Even with this announcement, Southwest has other sandals—er, shoes -to drop when in terms of Hawaiian announcements. The big question is when service from the Los Angeles and Orange County metro areas will begin. The 13 million people who live in those areas served by LAX, Burbank, Ontario, Long Beach and John Wayne/Orange County airports are currently left out of Southwest’s schedule, although competitors are now offering low fares from LA to the islands.
In addition, a quick check of Southwest Vacations, the vacation package site of Southwest Airlines, shows that Hawaiian flights—and hotels, rental cars and other amenities—have not yet been integrated into the system. When it is, in addition to the current Southwest.com/Hawaii site, expect tens of thousands of Southwest customers to begin building Hawaiian vacation packages.
Will Southwest’s entry into the market increase the pie for everyone? Or will the “Southwest effect” cut both prices and profitability for itself and its competitors?
For the airlines, the battle for the Hawaiian market, and perhaps a larger war over the value of plum destinations like Hawaii to loyalty programs, has just begun.
Jim Hepple is an Assistant Professor at the University of Aruba and is Managing Director of Tourism Analytics.