Southwest Airlines (NYSE: LUV) announced in October 2017 that it intended to start flying to Hawaii, U.S. air travelers and investors have both been eager to learn more about its plans. Over the past year, there has been a slow trickle of information, but the carrier still hasn’t confirmed exactly which routes it will operate, how often it will serve them, and when the flights will start.” data-reactid=”11″>Ever since Southwest Airlines (NYSE: LUV) announced in October 2017 that it intended to start flying to Hawaii, U.S. air travelers and investors have both been eager to learn more about its plans. Over the past year, there has been a slow trickle of information, but the carrier still hasn’t confirmed exactly which routes it will operate, how often it will serve them, and when the flights will start.
Hawaiian Holdings (NASDAQ: HA) and Alaska Air (NYSE: ALK), which will be its two main competitors in the West Coast-Hawaii air travel market.” data-reactid=”12″>However, during its recent third-quarter earnings call, Southwest Airlines provided the most detail yet on its Hawaii plans. What Southwest said could have important implications for Hawaiian Holdings (NASDAQ: HA) and Alaska Air (NYSE: ALK), which will be its two main competitors in the West Coast-Hawaii air travel market.
Getting closer to launch
The main reason why it is taking so long for Southwest Airlines to launch its Hawaii flights is that it needs to receive FAA approval for long over-water flights. This “ETOPS certification” process — which entails defining and documenting safety procedures, training flight crews, and then demonstrating the effectiveness of those procedures — typically takes 12 to 18 months.
According to COO Mike Van de Ven, Southwest Airlines has completed the documentation phase of the certification process. It still needs to do simulations for the FAA and then operate validation flights to receive the final regulatory sign-off.
Southwest’s recent Q3 earnings call, CEO Gary Kelly stated that the carrier expects to grow its available seat miles (ASMs) no more than 5% in 2019, with about half of that growth coming on Hawaii routes. That makes it possible to estimate how many Hawaii flights the low-fare airline plans to operate next year.
Southwest Airlines is on track to offer approximately 160 billion ASMs in 2018. Thus, it plans for up to 8 billion ASMs of capacity growth next year, with up to 4 billion ASMs of growth targeted at the Hawaii market. Based on a roundtrip distance of about 5,000 miles and 175 seats per aircraft, that implies an average of about 12.5 daily roundtrips to Hawaii during 2019.
Of course, the Hawaii flights aren’t likely to start on Jan. 1, and Southwest will probably allow for a bit of a ramp-up period. Thus, a more reasonable expectation might be for an average of no more than 10 flights a day during the first quarter, rising to as many as 15 flights a day by June. This would allow Southwest Airlines to connect most of the potential city-pairs between its four Hawaii destinations and its four California gateway cities while operating multiple daily flights on the most popular routes.
What does it mean for Alaska Airlines and Hawaiian Airlines?
If Southwest Airlines actually reached a schedule of 15 daily flights by the summer peak season, that would give it about 80,000 monthly seats to Hawaii. By itself, that would represent a roughly 10% increase in industry capacity to Hawaii compared to 2018, based on Hawaii Tourism Authority data.
That’s enough extra capacity to have a significant impact on the overall supply demand balance. Furthermore, it would represent growth of about 70% on average across Southwest’s four planned gateway cities in California.
Yet the news isn’t necessarily as bleak as it may seem. For one thing, Southwest has a massive base of loyal customers, and there have been rumors about Southwest Airlines flights to Hawaii for years. Thus, the launch of Southwest flights next year will probably unlock quite a bit of “new” pent-up demand — both from people who have been waiting to cash in Rapid Rewards points and from Southwest loyalists who simply want to fly their favorite airline to Hawaii.
Additionally, industry capacity between the West Coast and Hawaii surged nearly 12% in the first eight months of 2018, so this level of growth is not unprecedented. Scheduled capacity for the rest of the industry to Hawaii is roughly flat for the first part of 2019 as of now — and if anything, other carriers are likely to trim capacity as the year progresses.
Alaska Airlines and Hawaiian Airlines will surely have to make some adjustments as Southwest’s Hawaii expansion plays out. But while Alaska in particular may have to cut some flights due to the additional competition, both carriers should continue to enjoy plenty of success in the West Coast-Hawaii market during the years ahead.
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Adam Levine-Weinberg owns shares of Alaska Air Group, Hawaiian Holdings, and Southwest Airlines. The Motley Fool recommends Alaska Air Group, Hawaiian Holdings, and Southwest Airlines. The Motley Fool has a disclosure policy.