Southwest Effect, Will Hawaii Feel It?

Southwest Airlines Plans Hawaii Flights

Early this month, Southwest Airlines made a momentous announcement that sent waves through Hawaii’s airline and tourism industries. Southwest Airlines’ plans to start offering flights to and from Hawaii is welcomed news to locals and visitors alike. However, everyone seems to be asking the same question: Will ticket fares reflect the newly increased competition and how much of an impact will be felt?

According to a study completed by the University of Virginia’s Darden Business School, their study brought to light a phenomenon they refer to as the “Southwest Effect.” It essentially means “a lowering of fares and increase in passenger traffic” whenever Southwest Airlines enters a market. The term is backed by hard data and tangible measures; on average, a $45 decrease was seen in one way fares when Southwest served a market nonstop.

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Southwest offers their own evidence to back up the “Southwest Effect.” They state before they started offering service between Houston and Boston in early June of 2013, air fares were somewhere around $253 per passenger. Then, once they started servicing routes between Houston and Boston, fares dropped by 27% to $185. In addition, they also cite data from the U.S. Department of Transportation that there was a 44% increase in the number of passengers on the route.

Via a videotaped CNBC interview with Hawaiian Airlines Chief Executive Officer Mark Dunkerley, he refuted the “Southwest Effect” in Hawaii.

“I think a lot of the places Southwest goes into there’s sort of limited competition to begin with. And so prices may be a little higher than they otherwise would be. That isn’t the situation in the markets that we fly. We fly against lots of competitors. I mean, coming out of places like Los Angeles we fly against already four or five different competitors. It’s a very competitive marketplace. Adding one more competitor into that marketplace is unlikely to have the kinds of effect of adding a competitor when the competitor is sitting on a monopoly, for example.”

Dunkerley went on to state that he believes Hawaiian Airlines has the “right product for this marketplace,” and there’s no other airline serving Hawaii that can and does make the most of its market position than Hawaiian Airlines.

Rainbows everywhere on Maui

Dunkerley is confident in Hawaiian’s success over the years and is assured the airline will continue to thrive, “We compete against, effectively, everybody. I mean, Southwest is the latest entrant, but today we compete against most of the major U.S. airlines, most of the Pacific Rim national airlines, and we’ve succeeded against all of them. And we don’t anticipate anything being any different in the new environment.”

The Darden Business School spoke extremely highly of Southwest Airlines and offered a very optimistic outlook on Southwest’s ability. From an excerpt of the study, “From its beginning, the company delivered a simple product with exceptional consumer value — low fares, high frequency of service, single aircraft type, simple product design and a fun and friendly experience.”

Most notable, Southwest doesn’t charge passengers for their first two checked bags of luggage and it doesn’t charge change fees.

Even the night time views from Maui are amazing

In a prepared statement by State Department of Transportation spokesman Tim Sakahara,  “The announcement that Southwest Airlines plans to bring its successful brand and service to Hawaii is already generating tremendous excitement. There is capacity at our airports to accommodate additional carriers. We will work with the new airline to accommodate its logistical needs as it prepares to launch service next year. Adding a major airline to the Hawaii market will bring additional choices for residents and visitors and is anticipated to generate additional revenue for the state.”

Southwest announced its intention to apply for a Federal Aviation Administration authorization for extended operations between the Mainland and the Hawaiian Islands. Service details would be announced later, the airline said.

Southwest Chairman and Chief Executive Officer Gary Kelly said during a gathering of company employees in Southern California: “Hawaii is an important place for Southwest Airlines because so many people count on us to take them everywhere they want to go reliably and affordably. We’re ready and excited to address a request we’ve heard for years.”

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