Brawling Hawaii competitors Southwest Airlines and Hawaiian Airlines hoped to end their lowest fares (mainland and interisland) last month. Well, guess what? That didn’t happen, and it won’t be happening anytime soon.
This is hurting both companies, but Hawaiian, far more so. For a company the size of Southwest, this is relatively small change. Southwest’s revenue for the 12 months that ended September 30 was $23 billion, whereas per Hawaiian Airlines’ latest financial reports, the company’s revenue is $2.40 billion annually. Thus, Southwest is ten times larger with appurtenant financial resources. Just to keep size in perspective, UAL’s revenue is $25 billion; American and Delta are each at $17 billion, with second Hawaii bellwether Alaska Airlines coming in at $9 billion.
What both Southwest and Hawaii share in common is that, for differing reasons, they are each struggling to return to profitability. Southwest has by no means recovered from an unprecedented late-December meltdown that shook the entire aviation industry and sent the company, its customers, and investors reeling.
On the other hand, Hawaiian faces issues that, in part, relate to Southwest’s strong presence in Hawaii. And perhaps not surprisingly, the $39 ($26 net of taxes) interisland airfares and $119 ($93 net of taxes) regular mainland fares are not helping.
Also, international is a painful subject for Hawaiian, which isn’t the case for Southwest. Even Japan travel, which reopened international travel three months ago, is returning very slowly. Hawaiian hopes to be able to resume more foreign flying soon, but that remains to be seen in new and fast-changing global circumstances.
While not directly analogous, Hawaiian is somewhat like a Mom-and-Pop grocery store, while Southwest is more similar to Costco. Hawaiian is a fraction of the size and thus is arguably more vulnerable to various issues, including price increases, than the highly scaled and generally resource-rich Southwest. Costs include escalating employee costs, fuel, maintenance, and more. The single biggest expense is fuel, of course. And both airlines face unpredictability related to the economy and how it will impact Hawaii travel. Southwest is a behemoth of scale and resources, well prepared in many ways for the battle over Hawaii. Hawaiian, on the other hand, has a history of being part of Hawaii since 1929, exuding the culture of the islands generally and having strong Hawaii know-how.
Interisland flights are a source of anguish for Hawaiian Airlines.
The current price point for uber-important interisland flights will be $39 for the foreseeable future. It may rise and fall briefly, but that will be the deal, at least for now. The airlines get revenue of $26, after taxes, on a $39 airfare, which is only a small fraction of their cost to provide the service. Hawaiian says more than 20% of their revenue is from interisland flights. The winner here is Southwest.
Mainland flights where the two companies compete.
On flights from California cities, in particular, the competition remains fierce. Even before sales, the price point of $119 will continue, and there will be lower prices too. Remember that $119 only gets the airline 96 dollars, and the rest is taxes. You’ll find those fares intermittently (but more on than off) to all islands from cities including San Diego, Los Angeles, San Jose, and Oakland. Other cities have Hawaii airfare sales too, but that’s based on different competition and not part of this discussion.
Why are 20-minute interisland flights so bloody important?
For both airlines, interisland allows them to move passengers back and forth within Hawaii nimbly. At Southwest, which has no interline agreements with other carriers, it is the only way to get people to where they need to be in order to connect to Southwest Hawaii flights to the mainland. That’s under normal circumstances. It also protects them from unexpected events, like delayed or canceled flights, wherein they can get passengers to the islands mainland flights are operating.
Interisland is at the very core of Hawaiian’s business too. Just try searching for Hawaii flights, and you’ll find that their best mainland prices are often via connections interisland that dovetail with their mainland flights. Hawaiian has no means to distribute passengers on the US Mainland, so moving them within Hawaii instead is essential to their operations and network planning.
Can international resuming take the pressure off Hawaiian’s problems?
Hawaiian hopes to return to something akin to their regular pre-Covid international schedule by summer. At least for some markets. Those could include Japan, where Hawaii is a perennial favorite, and Australia, which will be in the middle of winter just in time for Hawaii’s summer.