Southwest Sure It Can Break Hawaiian Air's Inter-Island Grip

(Bloomberg) -- Southwest Airlines Co. plans to challenge Hawaiian Airlines for control of Hawaii’s island-hopping market shortly after beginning flights to the state from the mainland.

The short, high-demand, inter-island flights are squarely within Southwest’s wheelhouse, Southwest revenue chief Andrew Watterson said in an interview Friday.

“We see that big market with higher price points and it’s short haul, which is what we’re known for,” said Watterson, who was at Hawaiian Holdings Inc. before joining Southwest in 2013. “The size of the market and the prices led us to see that we can do it profitably.”

The Dallas-based discounter will enter a market littered with the ghosts of other airlines that took on Hawaiian and failed. Island Air ceased flying after filing for bankruptcy in 2017, a fate shared by Aloha Air in 2008. Mesa Air ended operations of its Go! discount unit in 2014. Southwest hasn’t disclosed when it will start flying to or within Hawaii, having received regulatory approval just this week.

The carrier will fly the 175-seat Boeing Co. 737-800, shifting later to the 737 Max carrying the same number of passengers. Hawaiian operates Boeing 717s with 128 seats between the islands, while its Ohana commuter unit uses 48-seat turboprops.

Grim History

“If you look at the history of inter-island flying, it works with one,” said Andrew Harrison, chief commercial officer of Alaska Air Group Inc., which flies to Hawaii but not between islands. “It’s never worked with two. There’s a reason that Hawaiian flies the airplane that they do.”

Watterson is undeterred. Southwest can operate the larger planes more efficiently than the 717s, which it found were more costly than 737s. A limited number of frequencies at peak travel times means “I’m not worried about filling them up,” he said.

“What people miss is that intra-Hawaii is a big market,” he said. “It’s larger than intra-Texas. We built our airline on intra-Texas using the 737.” The inter-island market averaged 6,515 people a day traveling each way in the year through Sept. 30, Watterson said, citing U.S. Transportation Department data that don’t include connecting passengers. Texas had 6,212.

Southwest will be taking on an incumbent carrier with a robust schedule of flights connecting the islands.

“Our Boeing 717s and ATR42s are ideally suited for our short-haul neighbor-island flying and high frequency,” Alex Da Silva, a Hawaiian Air spokesman, said by email. The carrier’s average 202 daily flights among six islands run from about 5 a.m. to 11 p.m., making it “very easy for a Hilo resident to make a lunch business meeting in Honolulu and still be home for dinner.”

Fare Calculations

Southwest and rivals once priced one-way tickets within Texas below $50 but increased the fares over time, boosting profits. On Friday, the cheapest one-way fare available from Houston to Dallas was $109.30, according to a Google Flights search. Three major carriers now fly throughout the state.

Hawaiian’s average one-way inter-island base fare, excluding taxes and fees, was $71 for the year ending June 30, 2018, the airline said. The lowest one-way fares priced online Friday for off-peak travel ran from about $70 to $95.

Southwest received U.S. Federal Aviation Administration approval on Feb. 27 for Hawaii service and said it would lay out details for its service “in the coming days.” The airline initially will fly from the California cities of San Jose, San Diego, Sacramento and Oakland. Its destinations will be Honolulu, Maui, Kauai and Keahole.

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