Southwest Air makes 5 years in Hawaii

Mar. 17—In Hawaii, the "Southwest effect " resulted in a double-digit increase in interisland passengers and reduction in interisland airfares.

Southwest Airlines has earned a reputation of entering new markets and lowering prices and increasing demand. In Hawaii, the "Southwest effect " resulted in a double-digit increase in interisland passengers and reduction in interisland airfares.

Southwest Chief Operating Officer Andrew Watterson said in an interview with the Honolulu Star-Advertiser to mark the airline's five years in Hawaii today, "The last five years have been very challenging for the airline industry and for the people of Hawaii, and I'm very proud that we continue to serve the market. It would have been very easy to use that as an excuse to give up and we did not.

"If you look at flying between the islands on the routes we serve, we've grown daily demand 24 % and brought fares down 42 %, " Watterson said. "We are super proud about making flying between the islands more affordable for the kamaaina. We're so grateful to feel welcomed in Hawaii as an alternative that's made a difference."

Southwest reduced interisland airfares after coming into the Hawaii market on March 17, 2019, by offering a competitive choice to Hawaiian Airlines, which had a monopoly in the interisland market after the departure of Phoenix-based Mesa Air's go ! Airlines in 2014.

The data Watterson shared comes from the U.S. Department of Transportation and refers to the difference in the interisland market between the 12-month total ended March 31, 2019, and the 12-month total ended Sept. 30, 2023.

Southwest's entry into Hawaii was heralded by certain consumers who, in addition to the price wars, appreciated the all-economy-seat carrier for its low fares, no-hidden-fees pledge and its absence of bag fees and change fees. Watterson said in the last five years, Southwest has carried over 2.7 million interisland bags for free and about 5 million free bags to and from the islands. In the last year alone, it carried 6, 388 free surfboards and 4, 007 pets interisland for a $39 fee.

Kelly Knox, Southwest corporate responsibility advisor, said the airline has given $3.2 million in cash and in-kind donations to charitable organizations based in Hawaii across all of the islands.

"We are just really trying to champion causes that matter the most to Hawaii, so we are aligning with things that are important to them across Hawaii, " Knox said.

Southwest also invested in its Hawaii employees, who now number 680, with the opening last year of a new command center, part of a nearly $40 million brick-and-mortar investment to support operations across the state.

Jack Richards, president and CEO of Pleasant Holidays and Keith Vieira, principal of KV & Associates, Hospitality Consulting, said Southwest has supported Hawaii's visitor industry by adding flights and beefing up marketing.

"Their impact on the Hawaii market has been positive. There is more competition. You have more seats. You have more choices, and travelers like choices, " Richards said. "There are people who are very loyal to Southwest so they are flying them."

However, Southwest has gotten pushback from some Hawaii residents who see its low fares as a threat to the sustainable tourism goal of growing tourism through visitor spending rather than arrivals.

While choice is ultimately good for consumers, it's seldom as good for competitors. Increased competition from go ! Airlines' 2006 entry into the Hawaii market is among the reasons for the 2008 closure of Aloha Airlines, where roughly 2, 000 people lost their jobs in what was then the biggest mass layoff in state history.

Go ! Airlines also competed vigorously against Hawaiian Airlines, which like Aloha Airlines was fresh from bankruptcy. Ultimately, go ! Airlines lost the battle on April 1, 2014, when it left the islands saying that the high cost of fuel had made flying interisland less profitable and that it wanted to deploy its aircraft to support its mainland operations.

Brad DiFiore, managing director for Ailevon Pacific Aviation Consulting, said Southwest has been great for passengers and for the public, "but it certainly has not been ideal for Hawaiian, " which has also been financially impacted by the COVID-19 pandemic. "If Hawaiian had any one of these crises on its own, it might have been in a bit better shape. But (Hawaiian ) has really been hit by a bunch of major things in a very short period of time, " he said.

It was announced in December that Alaska Airlines had reached a deal to purchase Hawaiian for $1.9 billion, an offer that included $900 million of Hawaiian debt. The deal still needs approval from the U.S. Department of Justice.

Vieira said, "A strong Hawaiian Airlines is very good for Hawaii, but that doesn't mean there can't be other competition. Competition makes better performers because you have to be aware of every step including pricing, availability and service."

Hawaiian Airlines declined to comment on its fare wars with Southwest ; however, during Hawaiian's latest investor earnings call, Brent Overbeek, Hawaiian Airlines' senior vice president, revenue management and network planning, said, "On our neighbor island routes, we continue to compete and win.

"We saw average fare improve progressively year over year throughout the quarter as we had a period in 2022 when $39 fares were available on Southwest up to the last seat availability. In December, our average fare from the neighbor island entity reached $60, the highest in 16 months."

Overbeek added that Department of Transportation statistics for third quarter 2023 show that Southwest's interisland load factors, a measure of how many passengers are filling seats on a plane, were at 47 %, while Hawaiian's were at 74 %.

Since entering Hawaii, Southwest has faced government shutdowns, the 2019 grounding of Boeing 737 MAX aircraft, COVID-19 and natural disasters including floods, hurricanes, the Kilauea eruption on Hawaii island and most recently the deadly Aug. 8, 2023, Maui wildfires, which caused a significant drop in visitor demand that has yet to fully recover.

"It's all about having to adapt to what the world throws at us—that was COVID, that was infrastructure challenges, that was natural disasters, " Watterson said. "Those are the things that are always happening somewhere in the world unfortunately, and as an airline you must adapt to them, and we have. We've changed our service pattern. We've changed our facilities."

An adaptation is that Southwest has reduced its trans-Pacific schedule to Hawaii, while adding interisland capacity. The airline also has built more seasonality into Hawaii with some routes continuing to operate year-round, while others are only operating on certain days or in specific seasons.

DiFiore said, "Seeing them adjust schedules seasonally is a healthy response to what the market demand is, and it's pretty normal elsewhere."

Southwest's most recent challenge is aircraft scarcity—a problem that Watterson said most airlines are facing.

"Boeing and Airbus are both having issues producing and delivering the aircraft necessary, and it's led to groundings of geared turbofan aircraft on the Airbus side and its lead to production decreases on the Boeing side, " he said.

To be sure, Alaska Airlines CEO Ben Minicucci said during a Jan. 25 earnings call that approximately one-third of the airlines' January capacity was affected by the grounding of the 737 MAX 9.

"Additionally, we believe it is likely that several aircraft deliveries could be delayed, which would further affect our full-year capacity plans, which we initially anticipated would be between 3 % and 5 % over 2023 levels, " Minicucci said.

Likewise, Hawaiian has averaged between two and four Airbus A321neos out of service in recent weeks, but had proactively adjusted its schedule late last year to ensure it had sufficient aircraft for its planned operations. Hawaiian expects to have all 18 A321neos in service by May and said it expects its near-term 787 Boeing deliveries to occur as scheduled.

DiFiore said aircraft scarcity likely will mean an industry environment where "the pain is spread around the networks, " and "there's slower growth, not necessarily cutbacks."

One of Southwest's next steps in Hawaii had been to begin flying the MAX 7 aircraft, which at 150 seats is a better-size plane for interisland service. It also has a longer flying range that could serve Hawaii from as far away as Denver.

Southwest said that it now assumes there will be no 737-7 aircraft deliveries, and it continues to assume no 737-7 planes will be placed into service this year, based on the current certification status with the Federal Aviation Administration.

Southwest expects fewer aircraft deliveries overall from its supplier Boeing and said in a recent regulatory filing that Boeing expects to deliver 46 737-8 planes this year. The company previously anticipated 79 737 Max aircraft deliveries, which included 58 737-8 planes.

Shares of Southwest fell nearly 15 % Tuesday to $28.76 a share after the airline discussed plans to respond to aircraft scarcity by reducing capacity and reevaluating its full-year financial outlook. Southwest closed at $28.35 a share on Friday.

Southwest has not yet published schedule revisions for specific airports. Its next earnings report is slated for release on April 25.------The Associated Press contributed to this story.

Southwest's Hawaii market maturation, by the numbers