Southwest Airlines (NYSE:LUV) is gearing up to resume its expansion in Hawaii over the next few months. Many routes between the West Coast and Hawaii are already suffering from overcapacity, so Southwest's continued growth is sure to put pressure on the incumbent carriers.
Alaska Air (NYSE:ALK) is one of the airlines that will be most affected by Southwest's growth, because it flies to Hawaii from all four cities that Southwest Airlines has designated as gateways for Hawaii flights. (Those are Oakland, Sacramento, San Diego, and San Jose.) The West Coast-focused airline is adapting to Southwest Airlines' capacity announcements by ending two of its newest Hawaii routes while ramping up service on several other West Coast-Hawaii routes.
Southwest Airlines is expanding its menu of nonstop flight options
Today, Southwest flies to Hawaii from only two cities: Oakland and San Jose. Those flights are split between two destinations in Hawaii: Honolulu and Kahului. Back in August, Southwest announced that it would begin flying to Hawaii from a third California city in January 2020, with the launch of daily nonstop service between Sacramento and Honolulu.
At the same time, the carrier also announced that it would begin flying nonstop from Oakland and San Jose to Kona and Lihue (two secondary markets in Hawaii) in January 2020. Those routes will each operate either three or four times a week.
In late September, Southwest Airlines accelerated the introduction of its Sacramento-Honolulu route to November. It also revealed that the routes from Oakland and San Jose to Kona and Lihue will move to daily service in March. Finally, Southwest announced that it will enter the fiercely contested Sacramento-Kahului route -- which currently has daily service from both Alaska Airlines and Hawaiian Holdings -- in March.
These moves by Southwest represented a serious competitive threat to Alaska Airlines. While Alaska has been flying from Oakland, San Jose, and Sacramento to Hawaii for many years, Southwest Airlines has a much larger customer base in each of those cities. Furthermore, Alaska Airlines doesn't offer daily flights on all of its Hawaii routes. It's hard to compete against daily low-cost service with just a few weekly flights, as many customers prefer the convenience of being able to fly on any day of the week.
Alaska retools its flight schedule
Last week, Alaska Airlines decided to cancel its nonstop routes from San Francisco and Sacramento to Kona, effective next March. These routes were launched in December 2017 and December 2018, respectively. Each route has been operating a few times a week recently.
Interestingly, Southwest Airlines has no immediate plans to compete directly with either of these routes. However, the rapid growth in service from Northern California to Hawaii (and to Kona in particular) has probably hurt unit revenue on these routes. Southwest's plan to launch two new daily Sacramento-Hawaii routes and two new daily Bay Area-Kona routes between now and March will only add to the unit revenue pressure.
On the other hand, Alaska Airlines plans to add frequencies on its existing routes from San Jose and San Diego to Kona and Lihue next March. All four routes will go from a few flights per week to daily service, using capacity redeployed from the two routes canceled last week, as well as from Alaska's decision not to resume seasonal service between Bellingham, Washington, and Hawaii next year.
Boosting service from San Jose and San Diego to Hawaii is an aggressive but probably necessary move. Southwest Airlines is dominant in both markets, but Alaska Airlines does hold the No. 2 market share position in each one, with about 40 daily departures from San Jose and about 50 from San Diego. Routes to Hawaii without daily service aren't likely to succeed once Southwest launches daily nonstop service of its own. (The low-fare airline giant has signaled that San Diego will be the next city to get nonstop flights to Hawaii.) But Alaska may have a strong enough market position to compete if it can match Southwest's flight frequency.
More cutbacks are still likely
Alaska Airlines has sent a clear signal that while it will reallocate capacity between routes as needed, it won't retreat from Hawaii without a fight. Nevertheless, it's unlikely that Alaska will be able to maintain its current level of capacity in the West Coast-Hawaii market in the long run.
First, Alaska Airlines continues to operate about three daily flights to Hawaii from Oakland, a city where it has a very small footprint. It stands at a competitive disadvantage to both Southwest and Hawaiian Airlines on Oakland-Hawaii routes. As a result, it will struggle to make those routes profitable as Southwest adds capacity from Oakland to Hawaii (particularly in the off-season).
Second, the Bay Area-to-Hawaii market may not be able to absorb all of the new capacity that will be added over the next six months. Most notably, between Alaska Airlines' extra flights and Southwest's entry into the market, weekly capacity from San Jose to Lihue and Kona will nearly quadruple and nearly quintuple, respectively, compared to today. If there isn't enough demand to support both airlines' daily nonstop flights, Southwest Airlines is almost certain to prevail, due to its far larger customer base in San Jose.
At the moment, it looks like any cutbacks by Alaska Airlines would probably come after the 2020 summer peak season. That means travelers from the Bay Area can look forward to another summer of intense competition -- and thus lots of low fares -- on flights to Hawaii.