Comments get us going. This morning’s statement from Guy caught our attention about his take on Southwest Hawaii and Costco. Whether you agree or disagree, there are some excellent takeaways to consider.
Southwest is so predatory and will sell cheap seats to hurt their competitors. Remember when Costco was cheap. After they destroyed the mom and pops they now can charge whatever they want.
So is the comparison between Costco and Southwest accurate?
Costco made a move somewhat reminiscent to Southwest’s when they came to Hawaii starting in 1988, with ongoing expansion, including gas stations and stores on all the major neighboring islands. When Costco arrived here on Kauai, the neighboring gas stations lowered their prices in a single day by nearly $1/gallon. We’ve seen many mom-and-pops and grocery stores disappear too. Costco used its weight to create an advantage that competitors simply could not match. The smaller gas stations were gouging us before Costco. And now Costco seems to be raising its prices back up with little competition. Similar retail analogies might include Walmart and Home Depot.
Southwest’s Hawaii brainstorm came directly from Hawaiian Airlines.
SWA’s CFO Andy Watterson said that the plan is to go big. And, with enough flights to any given place, “The other airlines can’t really touch you… We needed to force a pace.”
Southwest’s CFO, who came to them directly from Hawaiian Airlines, said, “It sounds risky to open a bunch of new cities, but the alternative is worse.”
Throughout its 55-year history, the airline has encroached on rival territory while others struggled. And so it was that Southwest doubled down during Covid on Hawaii, among other places. While others were contracting, Southwest expanded.
Southwest looks for whatever holes present themselves and jumps right in. They tried that on a wide range of mainland to Hawaii flights before pulling the plug on 10 Hawaii routes just two weeks ago. But even retrenching like that doesn’t stop them in Hawaii.
The next opportunity Southwest saw was Hawaiian’s monopoly on interisland flights.
What did SWA do to press the point on interisland? They announced $39 for every seat on every flight throughout the rest of 2022. Talk about undercutting the competition. We do like that we can fly interisland for a reasonable cost. Hawaiian Airlines has stepped up to the plate to matched the $39 fare on times that compete with Southwest. Here’s the issue. We estimate that it costs the airline multiple times that $39 fare to provide the flight including fuel, airport fees, personnel, and so much more. So how long can and will they both keep this going?
In a near-perfect description of what Southwest is doing, the pilot head of SWAPA (Southwest’s pilots’ union) described the airline’s expansion strategy this way: “Predatory and opportunistic—which we like.”
Since Southwest Hawaii flights began in 2019.
After more than a decade of anticipation, so much has happened since Southwest Hawaii flights began in March 2019. That included Covid and the grounding of their 737MAX fleet after two deadly crashes.
When they came to Hawaii, Southwest saw this special opportunity.
First, they were thinking of expansion. Southwest long felt that Hawaii remained underserved by other low-cost carriers, some of whom, like Allegiant, had tried and failed. Then too, Hawaii represented a big gap in a network so focused on where their California regulars wanted to go.
The mainland to Hawaii market has been dominated by what Southwest thinks of as the premium airlines, Alaska Airlines, American Airlines, Delta Airlines, and United Airlines. That made Hawaii a perfect match for Southwest, with its keen focus on predatory pricing and demographics.
But did that work? Somewhat.
Southwest isn’t averse to trial and error. And so it was as if they just canceled routes from Los Angeles to Kauai and Kona, Phoenix to Kauai and Kona, Sacramento to Kauai, Kona and Maui, and San Diego to Kauai, Kona, and Maui. That comes as the airline remains constrained on any additional direct mainland to Hawaii routes. That is in large part due to the distance limitations of their 737MAX fleet.
Will interisland be part of the Hawaii prize Southwest desperately seeks?
We don’t know. They’ve said their current focus is on convincing Hawaii residents to move from Hawaiian to Southwest for interisland flights. Will that work, and can Hawaiian sustain the $39 prices? One thing is for sure. It simply isn’t sustainable for anyone in the long run.
Costco has a set cost plus system of about 12%. It is totally unfair to put them in the same boat as Southwest. And it is a member system – you pay for the lower prices.I pay about a dollar under at Maui Oil – and its even less than Costco.
And I Do remember the mom and pop that used to have to charge 3 times the mainland prices for things because they didn’t have volume and it was totally expensive. So I for one am very happy Costco is here.
Costco is the only reason gas prices in Hawaii aren’t 8.00 a gallon right now. Those weren’t mom and pop gas stations gauging us it was Shell and Chevron! People are quick to forget but I remember when gas prices were $2 more a gallon than the mainland
I’m actually glad to see Southwest Hawaii here. I was actually one of the first Hawaii residents to fly Southwest inter island when they arrived and have been a loyal passenger since! Their prices then were slightly higher than what they are advertising now through till the end of this 2022 year! No matter what SWA was advertising as their fare at the time it was and still is way less than HA. As was stated Hawaiian Airlines had the monopoly over the State of Hawaii for years and were charging astronomical fares just to fly inter island. With the entry of a larger airline company with deeper pockets is giving HA a run for their money. It’s about time HA has some inter island competition!
Naaah, the Costco/SWA comparison analogy doesn’t really hold sway with me. First of all, Costco’s business model success is based primarily on membership sales. SWA would have to start selling memberships AND lower fares across the board for you to compare apples with apples. As far as eliminating local competition and then raising prices back up, I can’t really say that Costco does that because their major competition in both the retail and the online space is always fierce and ever-present, particularly with Walmart in the #1 retail slot. In addition, Costco will hold the price line on its $1.50 hot dog and soft drink as well as its $4.99 rotisserie chicken. Those two items are serious loss leaders and big wins for the consumer.
Aloha, can we stick to the facts please? Regarding Costco, Gas in Kapolei is $4.59 at COS. The nearest 3 gas stations sell regular at $4.99. Conversely, Hawaii Kai where Costco for some reason is’nt allowed gas pumps the two stations listed on gas buddy are $5.36 & 5.49 respectively. SWA is a great American success story. Braniff and Eastern Airlines (remember them) teamed up with “representative” Jim Wright to kill Southwest invitro. SWA, through sheer grit persevered, and they are “the world’s most loved, most flown, and most profitable airline”. google “the SW effect”. Fares drop between 30 and 80% with SWA’s Arrival in a market! Calling SWA “predatory” is absurd. Competition is great for all Hawaiian’s & don’t forget, bags fly free!
When Aloha airlines ceased operation Hawaiian airline was the only game in town. They were ruthless and unforgiving and jacked prices out of sight. Southwest was exactly what the interisland market needs.
I think that it’s been nice to finally be able to afford a flight to the other islands. If they can’t keep the prices low on large aircraft, Why can’t they offer smaller turboprop planes? There must be other options available.
Thank you for actually pointing out these cheap fares are unrealistic. Look at the cost of similar length flights on mainland operated by SWA, they’re not nearly as cheap. People keep complaining about HA price gouging but up until SWA came along, I could find HNL-OGG for $130 and the like, if I booked out far enough. Of course prices go up the longer you wait to book. In the same breath people lament the loss of Aloha airlines and the thousands of local jobs when Go Airlines did something similar as SWA. Then people go on to complain about lack of local jobs and companies. Unlike Costco, SWA has no need to hire many local workers at all. That’s local money leaving our economy.
During the pandemic when all the airlines stopped flying to/in Hawaii, I appreciated that Southwest was still flying. I would not have been able to go back and forth for my assignment if they had not been so committed to remain in Hawaii.
Just like all other mainland companies, they’re gonna come in and steam roll the local businesses. Idk about you guys and your need for a $29 fare but I understand flying jets is expensive. Once Hawaiian goes out of business, Southwest gonna jack up prices and all your aunties uncles and cousins gonna be jobless.I vote for the local brand. Only one carrier flying the Hawaiian flag on their birds and doing the announcements in Hawaiian.
Hawaiian was doing the same exact thing. I remember it costed $500 for a interisland flight from oahu to kona round trip. Can you tell me why the evil empire is any better? That and they hired only within. Yes being local is a bit bias.