MIAMI — Spirit Airlines plans to add service from Houston to Cancun, Toluca, and San Jose del Cabo, according to a filing with the Department of Transportation (DOT) Monday. The ultra-low cost carrier (ULCC) says that it plans to launch service to the three Mexican cities in March 2015, utilizing 178-seat Airbus A320 aircraft. While no firm details have been released about frequency, Spirit did note the following proposed schedule in its filing:
NK 488 ~~ IAH – CUN ~~ D: 1145 A: 1349
NK 489 ~~ CUN – IAH ~~ D: 1440 A: 1704
NK 471 ~~ IAH – SJD ~~ D: 1035 A: 1213
NK 472 ~~ SJD – IAH ~~ D: 1315 A: 1758
NK 493 ~~ IAH – TLC ~~ D: 1045 A: 1255
NK 494 ~~ TLC – IAH ~~ D: 1415 A: 1635
Houston’s George Bush Intercontinental Airport is a focus city for Spirit, who serves twelve domestic destinations (eleven year-round) with 119 departures per week. The airport is also a hub for Chicago-based United Airlines, who serves more than 150 destinations with 582 peak-day departures. United provides ample service to Mexico, with more than 50 daily flights to 23 destinations.
United serves Cancun and San Jose del Cabo, while Mexican national carrier Aeromexico serves Cancun. No airline offers nonstop service between Houston and Toluca, however, both Aeromexico and United serve Mexico City, located an hour east of Toluca.
The proposed expansion is a shot across the bow of Southwest Airlines, who has a large operation at Houston’s second airport: William P. Hobby Airport. Southwest is set to begin international services from Houston Hobby next year, and plans to launch service to several destinations across Mexico, Central America, the Caribbean, and northern South America. According to Southwest executives, the airline’s initial service plans call for between 20 and 25 international flights per day at Houston Hobby.
The entrance of Spirit onto the three routes will directly impact Southwest’s pricing power (indirectly in the case of Toluca, which Southwest may not serve). Furthermore, the restrictive nature of the bilateral air service agreement (ASA) between Mexico and the United States. For most cities in Mexico, the ASA restricts the number of airlines from each country that can serve each city pair. For example, for any city pair involving a US city and Toluca, only two US airlines may offer service. In the case of Cancun and San Jose del Cabo, three airlines may offer service.
However, because United offers service from Houston to these two cities, if Spirit is granted the right to serve Cancun and San Jose del Cabo, then only one additional airline could begin service between Houston and those two cities. Because Toluca is only allowed service by two airlines, there is only room for one additional airline as well. Southwest Airlines cannot begin international service from Houston Hobby until at least October 2015, as its international service from the airport is dependent on the construction of a new international terminal, which is scheduled for completion in September 2015. Thus in theory, Southwest could be locked out of these three Mexican destinations if one additional airline applies to serve them.
In practice, no airline is likely to begin service to Cabo or Toluca, which are small origin and destination (O&D) markets for Houston. Cancun, however, does suffer from additional commercial pressure. It is a massive O&D market from Houston, and several carriers, including Delta Air Lines, already have large point-to-point (p2p) operations to non-hub cities in Cancun. The threat to Southwest of being prevented from launching service to Cancun is substantial.
Even if Southwest is not formally precluded from serving these three destinations, Spirit’s new flights tangibly affect its business case. Southwest’s plans for international expansion in Houston were centered on its ability to stimulate markets by offering substantially lower fares than United and foreign competitors. However, Spirit’s low fares could capture much of the additional traffic, forcing Southwest to trade off more lucrative O&D traffic for connecting passengers on international services. And further international expansion by Spirit in Houston could sharply affect Southwest’s international ambitions.