Please ensure Javascript is enabled for purposes of website accessibility

Southwest Airlines Reveals More Details of Its Hawaii Plan -- and It's Bad News for Alaska Air

By Adam Levine-Weinberg - Updated May 7, 2018 at 6:46PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Southwest Airlines will fly to Hawaii from Oakland, Sacramento, San Diego, and San Jose. That could force Alaska Airlines to cut some of its routes from those cities to Hawaii.

Last October, Southwest Airlines (LUV 0.46%) confirmed long-running speculation that it would begin flying to Hawaii. The popular low-fare airline announced that it planned to start selling tickets for flights between California and Hawaii at some point in 2018, putting it on track to begin service in late 2018 or early 2019.

Southwest still needs to get FAA approval before it can begin ticket sales, but on Thursday, it offered more details of its plans for Hawaii. Based on Southwest's service proposal, Alaska Air (ALK 2.35%) could be forced to significantly scale back its presence in the Hawaii market.

Four California cities will get Hawaii flights

During its first-quarter earnings call last month, Southwest Airlines executives stated that the carrier would probably start service to Hawaii with just one city-pair, but that the carrier would relatively quickly expand to additional routes. Southwest also announced at that time that it planned to serve all of the top-four Hawaiian destinations: Honolulu, Kona, Maui, and Lihue.

Southwest Airlines has now filled in the details on the mainland side of things. It plans to fly to Hawaii from four cities in California: Oakland, Sacramento, San Diego, and San Jose. This choice of gateway cities makes sense because Southwest is dominant at all four airports, meaning that it has a sizable built-in customer base there.

A Southwest Airlines plane preparing to land

Southwest Airlines will fly to four Hawaiian islands from four cities in California. Image source: Southwest Airlines.

Thus far, Southwest has not revealed which city-pairs would be connected or how many daily flights might be offered on each route. However, it's reasonable to assume that the carrier would fly to Honolulu from each gateway city. Maui also has enough visitors to support daily flights from all four gateways. By contrast, Kona and Lihue might only be served from Oakland and San Diego -- or might have less-than-daily flights.

Alaska Airlines is vulnerable

Many investors assume that Hawaiian Holdings faces the biggest threat from Southwest's entry into the Hawaii market. However, Southwest's decision to start with Oakland, Sacramento, San Diego, and San Jose as gateway cities confirms that Alaska Airlines could be more at risk.

Alaska Airlines currently flies to Hawaii from all four cities. In fact, it is the market share leader to Hawaii from San Diego and a close second from the other three. However, it achieved this position by stepping into a vacuum after Aloha Airlines and ATA Airlines collapsed in 2008.

Hawaiian Airlines has more inherent appeal for vacationers traveling to Hawaii, as well as a schedule and aircraft configuration optimized for mainland-Hawaii flights. Meanwhile, Southwest Airlines has a massive market share lead over Alaska Airlines in Oakland and Sacramento -- and to a lesser extent in San Diego and San Jose.

Thus, as Southwest Airlines ramps up service to Hawaii, Alaska Airlines could be forced to retrench on many of its existing Hawaii routes.

How much capacity will Southwest Airlines devote to Hawaii?

Southwest Airlines plans to grow its fleet size by about 3% annually for the next couple of years. This implies that the carrier will have up to 50 additional airplanes to deploy in 2019 and 2020 combined.

A roundtrip from California to Hawaii takes more than 11 hours, even in a best-case scenario. Given that Southwest Airlines doesn't operate redeye flights, one daily route to Hawaii will almost fully utilize one airplane.

Oakland, San Diego, and San Jose could each plausibly support daily flights to all four Hawaiian destinations. Southwest might also want to offer a second daily flight to Honolulu from some of those cities in order to enable more connecting itineraries from the central U.S. In Sacramento, it's probably realistic to expect flights to only Honolulu and Maui.

A 737 MAX 8 in the Southwest Airlines livery

Flights to Hawaii will represent a big piece of Southwest's near-term growth. Image source: Southwest Airlines.

This type of service pattern would roughly double capacity from all four cities to Hawaii, though the net increase would be smaller if other carriers cut back. This isn't as absurd as it may sound. Southwest will carry a lot more connecting traffic than Alaska or Hawaiian. Additionally, it will be able to capture some passengers in Oakland and San Jose who would otherwise fly out of San Francisco. (There is currently more than twice as much capacity to Hawaii from San Francisco as there is from Oakland and San Jose combined.)

The level of service described here would require devoting at least 15 airplanes to Hawaii flights. Southwest Airlines also wants to operate some interisland flights starting in late 2019 or 2020, which will require at least a few more planes. In total, this would soak up 40% of Southwest's fleet growth for the next two years.

Considering that Southwest has plenty of other attractive growth opportunities, investors and air travelers probably shouldn't expect any additional growth in Hawaii until 2021 or thereafter. However, even its initial batch of routes will create plenty of upheaval in the U.S.-Hawaii air travel market -- and that upheaval may end with Alaska Airlines retrenching.

Adam Levine-Weinberg owns shares of Alaska Air Group and Hawaiian Holdings. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Southwest Airlines Co. Stock Quote
Southwest Airlines Co.
$39.64 (0.46%) $0.18
Alaska Air Group, Inc. Stock Quote
Alaska Air Group, Inc.
$48.45 (2.35%) $1.11

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/15/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.