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Rumor Roundup: Southwest’s Hawaii Plans From Likely To Just Plane Crazy

A Southwest 737-700 arrives into LAX. Southwest is likely to announce service to the Hawaiian Islands this week. What else could be up their sleeves? By Eric Salard [CC BY-SA 2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons

Earlier this week we reported that we believe that Southwest Airlines will likely announce that they are entering the Hawaii market.  While it is speculation, there are many good reasons to believe that Southwest will very shortly announce (possibly even announce today) that they will commence service to the Hawaiian Islands in 2018.

Since our story on Monday, Seeking Alpha produced a story with detailed FOIA requests between Hawaiian government officials and the airline, all but confirming that some sort of announcement involving Hawaii was in the works.  The rumor mill has kicked into overdrive on the internet and within avgeek circles.  While most of these rumors will prove false, it’s been fun to entertain the speculation and think through some of the open questions. Let’s preface this post…all of this is speculation based on our analysis of the market and our passion for the airline industry.  Here are some of the rumors we’ve heard, listed from most likely to occur, to fanciful.

RUMOR #1: Southwest will announce service to the Hawaiian Islands with at least 10 flights

Southwest will commence service with 10 flights from their major west coast hubs to Honolulu and Maui with Kona and Lihue to begin later in 2018.  Possible launching points for the flights include Oakland, San Jose, Los Angeles, Seattle,and San Diego.  This strategy would permit Southwest to directly confront Alaska Airlines’ growing size on the West Coast.

Since Alaska’s acquisition of Virgin America, Southwest has become more aggressive in confronting Alaska, launching routes that compete directly to contain Alaska’s growth. Alaska and Virgin have a very strong presence in the Hawaiian market. The launch of the Hawaiian market would be a direct move to contain Alaska’s growth and capture some of Alaska’s market share.

Open questions:  What city pairs will Southwest launch?  Will they serve all 4 major Hawaiian airports?  What would be the timing of this launch, knowing that they still need to formalize their ETOPS program? Will Southwest modify their Rapid Rewards program for the Hawaiian market?When will the service commence?  Southwest is retiring their 737-300s and will not have significant spare capacity until the middle of next year.

RUMOR #2: Southwest will announce a code-share with Hawaiian Airlines

A Hawaiian Airlines A330 is parked at a Honolulu gate. By Hakilon (Own work) [CC BY 3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons
This rumor, if true, would be wild but not unprecedented.  A partnership with Hawaiian would give Southwest immediate access to the islands and Asia while limiting the risk of directly entering new markets. Hawaiian flies to many of Southwest’s destinations on the West Coast.  Hawaiian is also set to receive a slew of new Airbus A321NEOs, beginning later this year.

Hawaiian would limit its risk of a potentially brutal competition with Southwest on its home turf. It also serves as a way to provide better air travel access to Southwest’s millions of Rapid Rewards frequent fliers. Southwest’s upgraded reservation system can now handle code-share reservations.  While this rumor seems unlikely, Southwest has already had codeshare agreements with ATA last decade and an interline agreement with Icelandair back in the ’90s.

The rumor seems pretty unlikely, but anything is possible.  If some sort of agreement were to happen, it is more likely that Southwest would fly their own metal to the Islands with connection opportunities to smaller Hawaiian markets, along with Australia and Asia onboard Hawaiian jets.

Open questions:  How would Southwest’s pilots/flight attendant union react to this code share?  Southwest’s contract with the pilots places strict limits on codeshares.  How would Southwest handle multiple classes of service?  Hawaiian Airlines has first class on all of their flights.

RUMOR #3:  Southwest will acquire Hawaiian Airlines

The rumor of an acquisition has been floating around industry circles for years. This one is surprisingly persistent. On the plus side, there isn’t significant route overlap between the two airlines. The merger would be largely complementary and give Southwest immediate own-metal access to Asia, Australia and the Hawaiian short-haul market. But the challenges would be many.

First, there is zero fleet commonality between the two carriers. Hawaiian flies a mix of 717s, second-hand 767s, A330s and plans to add A321NEOs and A350s over the next few years. Southwest only flies the Boeing 737. Second, Southwest just completed a complex merger with AirTran. Integrating cultures is difficult, even with an airline like AirTran that had a largely similar business model. The merger between AirTran and Southwest was challenging. A Southwest/Hawaiian linkup would be immensely challenging, costly, and divergent from their simplistic model of flying one type of airplane, with one class of service. Plus, there is no guarantee that a mega-merger between two top 10 carriers would even be approved by the Trump administration. Our guess here is that a merger would be very, very unlikely.  But we can never say never…

Open questions: Would it receive government approval? How would Southwest integrate such a different type of airline to their existing network?  How would they integrate two different cultures?  What would they do with first class on Hawaiian aircraft? Would they keep the largely redundant A321NEO fleet?

So what do you think?  Will Southwest announce entry to the Hawaiian market? Only time will tell…

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