MIAMI – Southwest Airlines is poised to reshape its route network to an unprecedented degree over the next 24 months, with an increased focus on high fare domestic airports, international expansion, and the newly accessible Dallas market. At the airline’s annual Media Day last week, amidst the unveiling of a new brand and livery, Southwest executives sat down to discuss the evolution of the carrier’s route structure.
Perhaps the most immediate changes will occur at Dallas Love Field, where Southwest will begin nonstop service to 19 new destinations this fall. The first set of destinations will roll out on October 13, 2014, marking the endpoint of Southwest’s herculean effort to eliminate the Wright Amendment, which had held the carrier back from expanding its home base. After the 2006 deal trading a repeal of the Wright Amendment for a cap of 20 gates at Love Field, Southwest was also crucially allowed to begin selling through tickets at Love Field, which according to CEO Gary Kelly, was a major factor allowing Southwest to preserve operations in Dallas. “Our presence at Love Field has also been great,” said Mr. Kelly, “but I don’t know where we’d be without the 2006 changes… [Thanks to the changes] we are now at 120 daily departures from Love Field.”
The opportunities in Dallas are a one-time windfall for an airline that has otherwise pivoted, with a new focus on longer distance flights and concentration in the eastern half of the United States. While Southwest has historically been strong in Baltimore-Washington, Nashville, and Florida, its 2010 merger with AirTran gave it a massive presence up and down the East Coast including a huge presence in previously-unserved Atlanta. The AirTran merger also strengthened Southwest’s hubs at Baltimore Washington and Orlando (where both carriers overlapped). However, independent of the merger, Southwest has also bulked up in key business markets such as Washington DC and New York, thanks in part to divestitures by the new American Airlines. By November, Southwest will offer 44 daily flights from Washington’s Reagan Airport and become the largest airline in the Baltimore-Washington metropolitan area.
Meanwhile, the growth in operations at New York La Guardia has substantially increased Southwest’s presence in the New York metro area. For years, Southwest served the region via Islip Airport on Long Island, but the combination of the United-Continental merger, the Delta – US Airways slot swap, and now the US Airways – American merger has given Southwest a substantial presence at both Newark and La Guardia. According to Andrew Watterson, Southwest’s Senior Vice President of Network Planning & Performance, the flying at La Guardia is important for Southwest’s customer perception. “[The flights have] helped us increase our relevance east of the Mississippi where sometimes we’re viewed as a leisure carrier, and not a leisure and business carrier. The further west you go, people go, ‘oh Southwest, they’re a major carrier, they’re a business carrier… We’re not trying to become New York City’s airline, but many people in our network want to get to New York City.”
However, Southwest’s bulked up network is not just limited to the East Coast. Chicago has crossed the threshold of 250 departures per day, and is now Southwest’s largest hub by both capacity and frequency. Moreover, as Mr. Watterson points out, the AirTran merger also strengthened Southwest in the Midwest.
“We have so many points of strength, some of our competitors may have 2-3 mega hubs, but we have significant centers of activity all throughout the US, so even if we open a particular dot outside the United States, we have so many spots within the US the international opportunity becomes really big for us really quickly. Look at Indianapolis or Milwaukee, those are places were AirTran did very well. Southwest did fine as well and you put the two airlines together and those cities work really well for us,” Mr. Watterson declared, “There’s a lot AirTran gave us that’s made us stronger and more relevant in that critical part of the country.”
With Southwest’s presence secured in almost every major market across the country (Cincinnati being one of the major exceptions), it is clear that the carrier will begin turning away from the continental United States for growth. “If we’re not finished with the continental United States, we’re much more closer to the end than the beginning,” opined Mr. Watterson, who hedged his statement by allowing for new destinations so long as they met certain criteria. “ [We will consider] any place with the high fares, underserved population and economic environment where we can have a critical mass of schedule.”
But the tamping down of domestic growth is more than offset by Southwest’s exciting turn to international service, or more precisely to air service outside the 48 contiguous states. According to Mr. Watterson, because the reservation system transition went smoothly, “[Southwest is] able to transition the [AirTran international] flying to Southwest Airlines metal.” Mr. Watterson also noted that 2015 will bring exciting new opportunities outside the borders of the United States, including the widespread launch of international services from Houston Hobby in the fourth quarter.
Mr. Kelly has frequently referred to 50 additional destinations on Southwest’s radar, and according to Mr. Watterson, Southwest’s nationwide scale may turn those 50 destinations into hundreds of flights per day. “We have so many points of strength, some of our competitors may have 2-3 mega hubs, but we have significant centers of activity all throughout the US,” noted Mr. Watterson, “so even if we open a particular dot outside the United States, we have so many spots within the US the international opportunity becomes really big for us really quickly.”
While expansion in Latin America is all but assured, Southwest executives seemed more upbeat on the prospects of service to Canada. “In Canada, for us the question becomes how do the yields offset the high facilities costs, given that we like to have low fares anyway as part of our brand,” said Mr. Watterson, admitting to the challenges that have plagued prior attempts by low cost and hybrid network carriers to enter the expensive Canadian market. However, Mr. Kelly struck a more positive tone, “I’d be surprised if we weren’t in Canada by the end of the decade.”