After announcing in late 2017 that it planned to start flying to Hawaii, Southwest Airlines (NYSE:LUV) revealed in May 2018 that it would fly nonstop to the popular vacation destination from four California cities: Oakland, San Jose, Sacramento, and San Diego. It launched Hawaii service from the first two cities this spring, but was forced to pause its expansion thereafter due to the Boeing 737 MAX grounding. Southwest will launch its first Sacramento-Hawaii nonstop route later this month.

However, until this past week, Southwest Airlines had not formally announced nonstop flights to Hawaii from San Diego. It finally did so on Wednesday, setting the stage for robust competition with incumbents Hawaiian Holdings (NASDAQ:HA) and Alaska Air (NYSE:ALK) in this market.

Southwest sets its schedule for San Diego-Hawaii flights

Southwest Airlines will begin flying from San Diego to Hawaii in April. On April 14, it will launch daily service between San Diego and Kahului. It will follow that up a week later by starting a daily nonstop San Diego-Honolulu roundtrip on April 20.

A Southwest Airlines plane preparing to land, with mountains in the background

Southwest Airlines will start flying from San Diego to Hawaii in April. Image source: Southwest Airlines.

Both of these routes are already served by Alaska Airlines and Hawaiian Airlines. On the Kahului route, Southwest has scheduled a morning departure from San Diego -- arriving in Hawaii before noon -- followed by an early afternoon return flight that lands in San Diego in the evening. That's generally considered optimal timing for local travelers, and it roughly matches the schedules Alaska and Hawaiian follow today.

Alaska Airlines and Hawaiian Airlines use a similar schedule for their flights to Honolulu. By contrast, Southwest will operate its San Diego-Honolulu route with a mid-afternoon departure from San Diego and a mid-morning return flight. This is an inferior schedule for tourists, as it results in losing almost a full day (compared to an early morning departure and an early afternoon return flight). However, it may enable Southwest to drive some connecting traffic through San Diego, where it operates up to 126 daily flights to more than 30 cities.

In conjunction with launching service from San Diego to Hawaii, Southwest Airlines will also expand its interisland flight schedule. The airline plans to increase its service on the high-traffic Honolulu-Kahului route from four daily roundtrips to six daily roundtrips in mid-April.

Alaska and Hawaiian are responding pre-emptively

Alaska Airlines and Hawaiian Airlines aren't standing still in the face of new competition from the top domestic airline. In fact, in recent months, both carriers have announced adjustments to their San Diego-Hawaii flight schedules that will take effect in early 2020.

A Hawaiian Airlines A321neo parked on the tarmac, with air stairs attached

Alaska Airlines and Hawaiian Airlines will adjust their San Diego-Hawaii service in 2020. Image source: Hawaiian Airlines.

Hawaiian Airlines is responding by reducing its capacity in the San Diego-Hawaii market. In early January, it will switch to using a 189-seat Airbus A321neo rather than a 278-seat A330 between San Diego and Honolulu. If anything, the A321neo has lower unit costs than the A330, due to its superior fuel efficiency. And with fewer seats onboard, Hawaiian Airlines can focus on serving the premium part of the market, rather than getting sucked into a long-term price war.

Meanwhile, Alaska Airlines recently decided to upgrade its San Diego-Kona and San Diego-Lihue routes -- each served a few times a week at present -- to daily service in March 2020. This will allow it to fully capitalize on the lack of nonstop competition in those markets. It can also be seen as a pre-emptive move to discourage Southwest from entering those markets.

Expecting healthy competition

Between the adjustments that Alaska Airlines and Hawaiian Airlines are making and the new service planned by Southwest Airlines, capacity between San Diego and Hawaii is set to rise by more than 30% in the second quarter of 2020 and beyond. This may put some pressure on airfares. That said, the San Diego-Hawaii market is underserved today compared to many other West Coast-Hawaii markets, so the impact shouldn't be too big.

Of course, there's a good chance that Southwest Airlines will look to expand its San Diego-Hawaii service later in 2020. It may consider adding a second daily flight to Honolulu, to make it more competitive with Alaska Airlines and Hawaiian Airlines in the local market. It also might add nonstop service to Kona and Lihue, breaking Alaska's monopoly on those routes. Moves like this could start to oversaturate the San Diego-Hawaii air travel market, potentially forcing Hawaiian or (more likely) Alaska to consider cutbacks.

On interisland routes, Southwest's planned growth may hurt Hawaiian Airlines in the short run, but it doesn't represent a big long-term threat. Hawaiian operates more than two dozen daily roundtrips between Honolulu and Kahului, so even after Southwest expands to six daily roundtrips, it won't offer the schedule depth coveted by business travelers. Moreover, Hawaiian can trim one or two daily departures without compromising its competitive position if that's what it takes to balance supply and demand. Thus, in the long run, the two carriers should be able to coexist successfully in the interisland market.

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