Southwest Airlines’ Hawaii flights have returned to sharp focus today as the airline faces the prospect of significant changes following increasing pressure for changes from shareholder Elliott Investment Management. The hedge fund driver has been vocal about its dissatisfaction with the airline’s overall direction, including pointed concerns it has expressed about its Hawaii operations.
Elliott’s demands could have profound implications for Southwest’s presence in Hawaii, which has been a cornerstone of the airline’s strategy since its highly anticipated entry into the islands in 2019. As the push for major changes intensifies, the future of affordable flights to the islands may be at risk, with potential cutbacks looming for both interisland and mainland-Hawaii routes due to ongoing profitability concerns.
The core of the Southwest shakeup (as it relates to Hawaii):
While global aviation headlines focus on the shakeup at Southwest Airlines, the potential impact on Hawaii flights is also increasingly coming into focus.
Elliott Investment Management has been vocal in its criticism of Southwest’s leadership, pushing for the removal of CEO Bob Jordan and now successfully seeing Chairman Gary Kelly’s planned retirement. Their dissatisfaction stems from Southwest’s underperformance and significant operational failures, including high-profile issues that have damaged the airline’s reputation.
See: Misuse On Southwest Hawaii Flights Became Last Straw For Old Ways.
Southwest has already made initial concessions, including the announcement of Kelly’s retirement and the upcoming departure of six board members in the next two months. Despite these changes, Southwest continues to stand by Jordan, citing his leadership and planned reforms, including changes to the airline’s seating policies and other operational strategies.
Heir apparent? Uncertainty around Andy Watterson.
Who is Andy Watterson? Andy Watterson, a key executive at Southwest Airlines with deep ties to Hawaii, has long been viewed as a potential successor within the company. He played a pivotal role in Southwest’s expansion into the Hawaii market, helping the airline compete against Hawaiian Airlines on both interisland and mainland-Hawaii routes. Before joining Southwest, Andy was Vice President of Network and Revenue Management at Hawaiian Airlines, overseeing route planning, pricing, and revenue strategies. This experience proved invaluable during Southwest’s Hawaii flight deployment and subsequent expansion, allowing Watterson to bring his unique insights to the table.
Elliott’s Influence on Watterson’s Prospects. Despite his big roles and successes in Hawaii at both airlines, Elliott’s push for more drastic changes could jeopardize Watterson’s leadership prospects. As part of the existing SW leadership team, Elliott may see Watterson as too closely aligned with current strategies, many of which the hedge fund has criticized, including Hawaii. It remains to be seen whether the nimble Watterson can maneuver into a larger leadership role, or if Elliott’s influence will lead Southwest to seek new leadership from outside its current ranks.
What this means for Hawaii.
Potential route and service changes: Hawaii is a crucial battleground for Southwest, but the airline’s flights to the islands are at risk due to profitability and prioritization issues. Elliott has pointed to Hawaii as a potential target.
As we noted previously, according to Elliott, Hawaiian Airlines maintains a 74% interisland load factor, while Southwest Airlines has struggled with a load factor 36% lower than Hawaiian’s. Additionally, Southwest’s entry into the interisland market significantly lowered average fares, with Southwest’s prices typically lower than Hawaiian’s. As Elliott pushes for profitability, it’s likely that Southwest will reevaluate its flights to and within Hawaii, potentially reducing frequencies, raising prices, or both.
The road ahead: impact on Hawaii tourism.
It could significantly affect local tourism if Southwest scales back its Hawaii operations. Southwest’s presence in Hawaii has been a boon for a new generation of Hawaii travelers, offering reasonable fares and perks like free checked bags. Any reductions in service or increases in fares would likely hurt both tourists and residents, who depend on affordable interisland and transpacific flights. This move could also strengthen Hawaiian Airlines’ position, further consolidating its market share if Southwest pulls back. Then putting that together with Hawaiian’s potential acquisition by Alaska, makes it appear that more flight consolidation and higher prices lie ahead for those of us who rely on Hawaii flights.
As this ongoing battle over the airline’s future continues, the impact on Hawaii for now remains uncertain. The shakeup could lead to a reduced presence in the islands, with fewer flights or higher prices for travelers. As Southwest attempts to balance investor demands while maintaining its Hawaii strategy, residents, tourists, and the entire Hawaii tourism industry will closely monitor these significant developments. The fate of affordable travel to and within Hawaii may hang in the balance as Southwest’s struggles to adapt to a very rapidly changing airline landscape.
I wonder how changes in SW’s scheduling and fare structures may (or may not) affect service from the East Coast. I simply don’t have a low cost option flying from the SE unless I’m willing to hop across on multiple flights and add an additional 10-12 hours to the trip. Not willing to do that. My preferred method is a regional to one of our 2 (3 if you count Houston) primary hubs – DFW or ATL and then a non stop widebody to HNL. Even then it’s still a 12 -13 total day.
Many of these airline wars have little or no effect on traffic from the East Coast so I’m going to predict that the current SWA situation won’t either. Now the market from West of the Rockies and interisland Hawaii – that’s an entirely different ballgame… Interesting to see how this plays out…
Best Regards
Southwest has no obligation to fly inter-island. IMO they probably could just fly mainland routes directly to the islands if profits don’t pan out. Just grab a surfboard and seek out that big big wave in seeking inter-island travel.
They entered the market like someone moving here and trying to speak pidgin when they can’t even pronounce the street names. Their brand will always reflect that for many that live here. Their inter island business model simply can’t compete with Hawaiians on a cost basis, way less efficient and it adds extra costs to their transpac operation. It was a cocky way to enter the market. A decision by a management that doesn’t seem to understand the operational limitations of their plan. Not to mention Hawaiian is simply far better at flying inter island and it shows when operational issues(weather, eruptions etc) arise. Can’t imagine how they could justify staying with no chance of becoming profitable.
Ha! Clearly written by a HAL troll who knows nothing about SWA and the operations there.
Sorry AJS, no, I’m retired from a long airline career and a long time resident of Hawaii. I am fascinated by the rich aviation history of Hawaii (read Peter Foreman’s book, it’s excellent). I know enough that tying up a 737 Max for a brief money losing inter island leg is very costly and poor aircraft utilization to put it mildly. A plane as expensive as a Max or any plane has to be used efficiently to justify the cost. Not to mention the wear and tear an inter island leg does to it. HA’s (Alaska) challenge will be finding a replacement for the 717, which is a perfect inter island plane well suited to the market.
Go ahead and mess up and see where it gets you.
Maybe Southwest will price flights to break even and not lose money. I understand why Hawaiians would not like that but running any operation at a lose is not good business. One of the reasons Hawaiian is getting bought is it was force to sell intra island flight at below break even with the entrance of Southwest. It would be interesting to see what a break even fare is for each island route. If it is too much, maybe the intra island routes should convert to EAS route with government subsides.
Greg, at today’s prices and load factors SWA is losing money heavily, HA is not. If SWA operated at break even for them HA would be quite profitable inter island. Higher ticket prices would drive SWA load factors even lower…so I don’t think their trying to operate at break even is even possible. The higher they raise their fares the lower their already dismal load factor would go. The lower they set the fare the more money they lose…They are between a rock and a hard place.
Agreed Southwest is losing lots of money but I am not sure Hawaiian is making much if any. On page 40 of their latest 10-Q intra island revenue for the last 3 months was up 11 % year over year but 20% below the 2019 number. If a market that represents 1/5th of your revnue is off that much I am not sure you are making money in that segment.
John W? What are you smoking? Hawaiian is losing over a $1M a day…a day! How is Hawaiian not losing money? Do you read their financial reports?
I didn’t say HA wasn’t losing money…they are getting hammered on their Japan flights. Weak yen and lower demand. I’m just pointing out the fact that with much higher load factors and yield on the tickets they sell inter island vs SWA coupled with their much lower operating costs they are not hemorrhaging money like SWA is. Their inter island operation is not the source of their losses at the current prices…it was when SWA introduced $39 fares to try and establish themselves. Safe to say it didn’t pan out so well for them. Hawaii has been a huge cash drain for SWA with no end in site, which was the question brought up in this story.
Wait wait wait, so this guy Waterson worked for Hawaiian, knew the ins and outs of Hawaiians pricing and route structure, then goes to work for Southwest???? Did they forget to have him sign a no compete clause?
The HTA and county leaders should be happy as this will reduce the number of tourists and numbers of budget tourists, a stated goal of both groups.
Residents will see higher air fares, just one of many cost increases that will follow a decline in tourism
It’s unfortunate investors, who probably aren’t familiar with airline operations, can dictate changes of the magnitude Southwest is considering. It’s all about the bottom line with these people.
Bring back the Ferry ‘dust-up’, settle it and move forward.
There is more bureaucracy involved with rebirth of the superferry. The governor at the time did not follow guidelines for a complete EPA study for a new ferry. That was a big reason it was taken out of service and thus its demise. It was very popular with locals and tourists and was a great idea. Hotels and rental car companies also had a hand in its failure.
However, for a redo it would take a massive amount of money. The superferry now operates on the mainland. Maybe someday.
Personally, I have mixed feelings about this. We have never been “budget travelers”, so any increase in prices doesn’t scare us much. The way we see it in general is if you can’t afford to go there, go somewhere you can afford. This would just continue to push “budget” travelers away from Hawaii, and make Hawaii more of a luxury destination which not everyone can afford. Is that a good thing or a bad thing depends on which kind of traveller you are. I’ve also hated the fact that Southwest came in and tried to force Hawaiian out of business by starting a fare war that they were better able to win.
If Southwest Airlines cans CEO Bob Jordan, it will not come an hour too soon. Southwest Airlines has been the last to, “get with the program.” Their lower airfares has been the financial albatross which has prevented them from doing a long necessary, serious 25 year behind technology update. It may look great for the customer, but 2 pieces of baggage free, cattle call boarding & without assigned seating, the flights are not fun. Now, the investors are wondering why they are not earning the returns that their investment in another airline would be better. The handwriting is on the wall. Southwest Airlines had better change or loose it all! Hawaiian Airlines still has a very good chance because they may be close to a significant change which will bury Southwest Airlines in the Hawaii air travel business model. Elliott Investment Management will be driving the Southwest Airlines bus & eating their sushi, ramen & lau lau lunches!
Southwest pulling back routes will make both SW & Hawaiian more profitable. Less competition means Hawaiian raises fares which helps them survive financially, especially if the Alaska acquisition doesn’t happen.
I understand the business side, but cutting Hawaii routes will alienate a loyal customer base. How this plays out will be interesting. I sure hope they can make Hawaii work.
If Southwest scales back, aren’t we going to see higher fares again? That’s going to hurt local families in a bad way. We have kids in school on Oahu and need to go back and forth to Honolulu regularly.
I’ve always flown Hawaiian Airlines, but it was Southwest coming here that lowered prices. I hope we don’t lose that competition.
Well if don’t want that to change, a lot of people will need to start flying Southwest Inter-Island. Otherwise, we’re going to get what we get.
Absolutely! People or the LOLOs forgot what Hawaiian charged and how they were mistreated when Hawaiian was the monopoly here.
We had Island Air going out of business that gave Hawaiian the interisland monopoly. I think the government should have stepped in early on to prevent that from happening. Now no island air, no Aloha air, all these mainland companies coming in to take over, killing our local jobs.
The problem is that Southwest forced Hawaiian to sell those seats below break-even. So, it wasn’t a question of competition keeping prices low, it was about Southwest artificially lowering prices to the point that nearly drove Hawaiian out of business. Southwest has a history of doing that when they enter a new market. They come in initially with prices below break even to force their competition out. It’s a nasty tactic which is coming back to caught them in Hawaii.
I hope Southwest doesn’t pull back on Hawaii. Their flights have made travel affordable for so many people including my family.