ANAHEIM – Southwest Airlines is finally launching service to Hawaii. At an employee event at Universal Studios in Anaheim Wednesday evening, Southwest CEO, Gary Kelly, announced that Southwest would enter the Hawaiian market in 2018.
While specific market and schedule information are yet to be revealed, tonight’s announcement marks a firm commitment and a blockbuster entry for Southwest into one of America’s most lucrative regional air travel markets.
According to Kelly, the primary holdup for Southwest has been driven by Extended-range Twin-engine Operational Performance Standards (ETOPS) certifications on the 737-800 fleet that will launch service before the recently-delivered 737 MAX takes over.
“A day long-awaited by our Customers, fans, and more than 55,000 of the world’s most-loved airline Employees is finally within sight—a day that will showcase your Hospitality, about as far Southwest as you can go in the U.S.,” Chairman & CEO Gary Kelly told thousands of Southwest Employees at a Company gathering in Southern California. “Hawaii is an important place for Southwest Airlines because so many people count on us to take them everywhere they want to go reliably and affordably. We’re ready and excited to address a request we’ve heard for years.”
Hawaii is Southwest’s final (American) frontier
While Southwest’s entry into the Hawaiian market has been rumored for years, those plans gained steam once Southwest formally ordered the Boeing 737 MAX, the re-engine of the current generation 737NG family (which includes the 737-800).
The 737 MAX would be the first major aircraft for Southwest that offered the right combination of low operating costs and strong payload-range performance to make routes to the island viable.
Hawaii is also the culmination of more than a decade of evolution at Southwest, which went from a ULCC, no-frills business model operating on mostly short-haul routes in the Southern and Western US, to a moderately priced network-LCC hybrid with a truly expansive network.
Southwest is already the largest domestic airline – Hawaii was essentially the only hole in its route network.
Competing in Hawaii is no layup
The Hawaiian market is more complicated for Southwest than it would have been six or seven years ago. At its core, the Hawaiian market, even from the West Coast, is a medium-haul overseas market, not dissimilar to the trans-Atlantic market in some ways.
This means that airlines often rely on filling the front of the plane (with domestic First Class or even international Business Class) to make a profit. It is no accident that since Aloha’s demise, no low-cost carrier has really been able to make Hawaiian routes work.
Allegiant made a credible attempt back in 2012, but it has only been able to sustain Las Vegas – Honolulu over a multi-year period.
Moreover, the existing players in the Hawaiian market are growing sharply. Earlier this year, full-service carrier United Airlines announced a major expansion in the Hawaiian market that it once owned.
Hawaiian Airlines has grown massively over the last 5-6 years and will be adding the A321neo and its point-to-point capabilities to its fleet in early 2018. Alaska Airlines has already largely cornered the West Coast point-to-point Hawaiian market with 32 nonstop routes from Anchorage, Bellingham, Los Angeles, Oakland, Portland, Sacramento, San Diego, San Francisco, San Jose, and Seattle-Tacoma to Honolulu (Oahu), Kahului (Maui), Lihue (Kauai), and Kona (the Big Island).
In fact, the market that Alaska cornered beginning back in 2006 from secondary West Coast cities to Hawaiian destinations would have been the perfect market for Southwest. San Diego, LA, and Oakland are full-fledged hubs for Southwest, while Sacramento and San Jose are important focus cities with large nonstop route portfolios.
But now with Alaska and soon Hawaiian in those markets, Southwest will need to compete heavily on price, which isn’t its forte anymore. Moreover, the A321neo will allow Hawaiian to encroach on key Southwest hubs in Las Vegas, Phoenix, and Denver, eating away at potential routes there as well.
Initial markets are likely to be spread up and down the West Coast
Still, Southwest is a carrier with a powerful marketing machine and a loyal customer base. In particular, its lack of a checked baggage fee could do wonders in a market where almost all of its competitors do charge checked bag fees and where the trip is long enough to warrant mostly checked bags.
So Southwest is far from doomed, and we do believe that they will carve out a piece of the market. But if they launched Hawaii seven years ago – they could have dominated it.
Regardless, the initial markets for Southwest in Hawaii will likely be centered on the actual West Coast (as they will be operated with the 737-800). In particular, LA and the Bay Area are big enough markets that Southwest can likely support service to all four major Hawaiian airports (Honolulu, Maui, Lihue, and Kona) from both LA and Oakland.
Ditto from San Diego, which is an important hub for the company. Southwest may also take a look at adding routes from San Jose and Sacramento, though those markets will likely be less of a priority.
Once the MAX 8 comes onto property, Phoenix, Las Vegas, and potentially Denver will also likely gain Hawaiian service. But beyond those hubs, there aren’t a ton of options purely using the MAX 8 (the longest ranged MAX jet) for Southwest to fly to Hawaii. Seattle and Portland are Alaska strongholds, and Reno, Fresno, and Tucson aren’t large enough markets.
The Texas cities like Dallas and Houston and mid-continent hubs like St. Louis and Chicago would have to wait for a true middle-of-market (MOM) solution from Boeing. But at the end of the day, even service from the Western half of the U.S. represents a major shift for Southwest.