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.