Wednesday, May 16, 2018

Fare fight: Alaska Airlines ready to battle Southwest Airlines in Hawaii, CEO Brad Tilden says

Alaska Airlines is ready to battle Southwest Airlines when the discount carrier launches service to Hawaii from four California cities in December or early 2019, Alaska CEO Brad Tilden says.

"We've competed against Southwest Airlines for a long, long time," Tilden said. "They are a very good airline but we've got to go on the field and compete."

Challenges like this, he said, make Alaska stronger.

"If I were to guess, five, 10, 15 years from now," Tilden said, "I would guess we'll have an extraordinarily strong franchise in Hawaii."

Southwest announced it will fly to Hawaii from Oakland, San Jose, Sacramento and San Diego, promising "aggressive pricing" and two free bags, but no meals and no reserved seats.

Southwest will provide inter-island service and serve Hawaii’s four primary airports: Honolulu, Maui, Kauai and the Big Island.

"We are going to lead on pricing and we are going to generate a lot of traffic very quickly,” Southwest CEO Gary Kelly told a Hawaiian newspaper.

That could quickly lead to a fare war. But Tilden doesn't seem worried, saying Alaska Airlines will "embrace" competition.

"I think the mindset has to be competition is a good thing," Tilden said.

Tilden said the airline industry in general is very competitive, noting Alaska has benefited from its own competitive expansions due to the lack of restrictions on U.S. destinations.

Both airlines rely on Boeing 737 jets as their workhorses, but Alaska will tout several things as differentiators, Tilden said, including its on-time performance, fares that are "very, very close to the low cost airlines," superior onboard service, a great mileage plan and premium cabins.

"At the end of the day, there are a lot of things to differentiate Alaska," Tilden said.

Veteran airlines analyst Helane Becker with investment firm Cowen told her clients Alaska and Hawaiian Airlines "are the biggest losers" in Southwest's Hawaii expansion.

"We expect Hawaiian to protect their turf against Southwest, while competition between Alaska and Southwest remains a major theme for both companies," Becker said.

Steve Danishek, a Seattle travel industry analyst, disagreed somewhat, saying he doesn't see much initial pressure from Southwest on Hawaiian routes because the budget airline will attract mostly "pocketbook flyers."

However, Southwest's lower pricing, combined with inter-island flights, could eventually threaten Alaska's routes over time, Danishek said.

"Alaska may have to adjust fares, or a better and cheaper response would be to offer bonus miles (double or triple mileage) to compensate customers," Danishek said.

How much could fares drop? University researchers have found when Southwest enters a market, average fares decreased by up to 24 percent.

(Andrew McIntosh - Puget Sound Business Journal)

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