Friday, October 13, 2017

Will 'Southwest Effect' Rock Airfares To Hawaii?

In an era of $200 flights to Europe, coach airfare to the Hawaiian Islands remains costly. A flight can range from $500 to $1,000 or more round-trip, particularly during high season. Delta has a nonstop from LAX to Honolulu from Dec. 19 to Dec. 29 for $877 on A round-trip from Chicago (ORD) to Honolulu on United on the same dates came up at $1,195.

Flights to popular neighbor islands like Maui, Kauai or the Big Island are often even more expensive than flying to Honolulu. And while there are occasional sales, the distance from the West Coast to Hawaii (2,400 miles from SFO, 2,550 from LAX) makes the Pacific a moat that limits competition.

That may finally be changing, as Southwest Airlines announced this week that they will begin selling tickets to their most requested non-destination, Hawaii, in 2018. To support this service, Southwest also announced it will launch an application for Federal Aviation Administration authorization for Extended Operations (ETOPS), a critical licensing and permit process for extended long-distance (such as over-ocean) flights. The announcement didn't go into details, but Southwest is probably trying to get ETOPS-180 certification, which means a twin-jet is certified to operate up to three hours away from the nearest diversion airport.

To announce its upcoming Hawaiian service, Southwest did a satellite announcement from Waikiki Beach, with President Tom Nealon introducing the governor of Hawaii. While the announcement stated that tickets would go on sale in 2018, many questions went unanswered. These included when the tickets would go on sale, dates projected for the first flights, where the flights would take off from (the range of the 737 MAX makes the West Coast the likely launchpad), classes of service (all-coach has been the Southwest standard), which islands would be served, and of course pricing.

Also unclear was whether any 737 MAX aircraft have been delivered to the FAA for ETOPS certification. According to The LA Times, Andrew Watterson, Southwest's executive vice president and chief revenue officer, said it might take the FAA one to two years to approve Southwest’s application for long-term service to Hawaii.

While the announcement was short on information, it was long on platitudes. Chairman and CEO Gary Kelly, who apparently didn’t make it to Hawaii, said, "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.”

Currently, six airlines offer service to the islands, including Alaska, Hawaiian, Virgin America (now part of Alaska), United, American and Delta. All, save Hawaiian, are majors. Occasional attempts by low-cost carriers (most recently Allegiant) to crack the market have come and gone.

Cited reasons for failure include a limited good-paying business travel market, costs of operations, a small local market (only 1.4 million people live in Hawaii) and low margins with leisure travelers. Then there's the worldwide network connections offered by the major airlines, which few low-cost carriers can match.

While clearly many questions need to be answered, Southwest may be different. Southwest currently serves 101 destinations in the United States and nine other countries. The airline has more than 4,000 departures a day during peak travel season. More than 100 million people fly Southwest each year, and the airline currently has seven destinations served by more than 150 flights a day, including Chicago (265), Baltimore (234), Las Vegas (218), Denver (209) and Dallas (180).

The “Southwest effect” may lower fares when the airline enters a market, but will passengers balk at flying its single-aisle 737s to Hawaii? While some dream of luxurious jumbo jet travel to the islands, the reality is that United, Delta and Alaska are already operating 737s to Hawaii. More likely, Southwest’s reputation as a "fun" airline may make it a popular choice to "get the party started" en route.

Vague as it was, the announcement was enough to drop shares of Hawaiian Airlines, already contending with a planned expansion of United service to the islands, by 2% on Thursday. The chilling words? Andrew Watterson, executive vice president of Southwest, said, “We anticipate fares will drop.”

(Michael Goldstein - Forbes)

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