Southwest Airlines’ immediate focus for 2018 is putting the pieces together for its highly anticipated launch of service to Hawaii. But the US’ largest domestic airline could have greater ambition for Hawaii that includes challenging Hawaiian Airlines’ dominance in the inter-island market.
Southwest’s planned service to Hawaii was perhaps one of the worst kept secrets in the US market, and in Oct-2017 the airline finally formalised plans to serve the island, but has not offered specific details of planned routes or a launch date.
The airline is in the midst of completing technical preparations for its service to Hawaii, including attaining ETOPs certification from the US FAA for its Boeing narrowbodies. ETOPs ensures aircraft meet certain safety standards when operating in areas that have limited airports for use in an emergency.
Obviously Southwest is currently crafting a schedule for flights from the mainland to the Hawaiian islands. But the airline has also expressed an interest in interisland operations, a market currently dominated by Hawaiian Airlines.
“It [interisland flying] has been down our priority list,” Southwest CEO Gary Kelly recently stated. “But we’ll have serious consideration for that.”
Interisland market dynamics are currently in state flux after Island Air sought Chapter 11 bankruptcy protection during Oct-2017. Although Island Air has a small presence with just five aircraft, its capacity expansion has created pressure for Hawaiian Airlines. Interisland routes will represent approximately 24% of Hawaiian’s revenues in 2017.
Hawaiian executives calculated industry capacity grew 13% year-on-year in 3Q2017, driven by Island Air’s expansion from Honolulu to Maui, Kona and Lihue. The competitive capacity resulted in Hawaiian posting a passenger unit revenue (PRASM) decline in the high single digits on routes between the islands during the quarter.
If Southwest does opt to add interisland service, capacity in those markets would spike significantly. Its 737-800s and 737 Max 8 narrowbody jets feature 175 seats compared with up to 128 seats on Hawaiian’s 717 jets.
The market from the US mainland to Hawaii is crowded, with roughly seven airlines operating service to Hawaii. But the interisland market is completely different. Hawaiian is the dominant airline, holding a commanding seat share in the region’s main routes. From Honolulu, Hawaiian holds a 88% share to Maui, an 85% share to Kona and an 83% share to Lihue. It is the only airline operating from Honolulu to Hilo.
Southwest’s entry would create a significant market disruption, but Hawaiian has the advantage of decades of interisland market experience. The airline also has numerous codesharing partners for its interisland flights, including some US major airlines. Those pacts generate a certain level of revenue for Hawaiian that Southwest wouldn’t presumably attempt leverage on potential interisland routes.
Previously, Hawaiian has added two 717s to its interisland operations to support connecting traffic from its long-haul flights to Asia, which helped the airline to post load factors of more than 90% on interisland flights.
Hawaiian has some time to ready its defences before Southwest potentially enters the interisland market, but threat Southwest poses is significant, and could likely result in pricing pressure in one of Hawaiian’s most important geographical regions.