Southwest Airlines Will Resume Hawaii Expansion in 2020

Adam Levine-Weinberg, The Motley Fool

Updated Sun, Aug 18, 2019, 12:05 PM

For the past five months, Southwest Airlines (NYSE: LUV) has had to keep its Hawaii growth plans on ice, because of the grounding of the Boeing 737 MAX. The 737 MAX was supposed to account for nearly 10% of Southwest's fleet by the end of 2019. Without those planes, there was no way for the carrier to expand in Hawaii without making deep cuts elsewhere.

However, in conjunction with its second-quarter earnings report, Southwest Airlines announced that it would soon resume its growth in Hawaii. On Thursday, the low-fare airline revealed its next batch of routes to and within Hawaii -- and they will start up early next year.

A return to growth at last

Southwest Airlines launched the first of its long-awaited flights to Hawaii back in March. By late May, the carrier was operating six daily round trips between the mainland and Hawaii -- connecting Oakland and San Jose to Honolulu and Kahului -- as well as 16 daily interisland flights within Hawaii: four Honolulu-Kahului roundtrips and four Honolulu-Kona round trips.

Unfortunately, the Boeing 737 MAX grounding began soon after Southwest Airlines announced its first batch of Hawaii routes, and it has dragged on far longer than expected. Indeed, the airline said last month that it had removed the 737 MAX from its schedules until January 2020.

The 737 MAX grounding disrupted Southwest's plan for expanding in Hawaii. Image source: Southwest Airlines.

However, Southwest Airlines recently decided to end all service to Newark Airport. That move freed up airplanes to support additional Hawaii routes -- even if the 737 MAX's return is delayed again.

First, Southwest announced its first route connecting Sacramento to Hawaii: a daily nonstop to Honolulu. Second, the carrier announced its first routes from the mainland to Kona and Lihue. From Oakland, it will fly four days a week to Kona and three days a week to Lihue; from San Jose, it will fly three days a week to Kona and four days a week to Lihue. Third, Southwest revealed three new interisland routes. It will offer four daily round trips from Honolulu to Lihue, four daily round trips from Honolulu to Kona, and one daily round trip between Kahului and Kona.

With these moves, Lihue and Hilo will become the next new cities in Southwest Airlines' route network. All of these new routes will start up in early 2020, between Jan. 19 and Jan. 21.

Hardly a devastating blow

As expected, Hawaiian Holdings (NASDAQ: HA) and Alaska Air (NYSE: ALK) will be the two airlines most affected by Southwest's new Hawaii service. Hawaiian Airlines is currently the dominant carrier on all of the interisland routes that Southwest Airlines plans to serve. It also has a monopoly on the Sacramento-Honolulu route and is the market share leader between Oakland and Lihue today.

Southwest will challenge Hawaiian Airlines on more interisland routes next year. Image source: Hawaiian Airlines.

Meanwhile, Alaska Airlines currently has a monopoly on the San Jose-Kona, San Jose-Lihue, and Oakland-Kona routes and competes with Hawaiian on the Oakland-Lihue route.

That said, the latest batch of new routes shouldn't hurt Alaska and Hawaiian that much. Southwest's new mainland-Hawaii routes add up to three flights a day, which isn't very much considering the size of the market and the number of Southwest Airlines frequent flyers in Northern California. Southwest may be able to fill its flights just with the incremental demand its presence in these markets will stimulate.

Southwest's new interisland routes will be more of a headache for Hawaiian Airlines. Still, the Hawaii-based airline serves the Honolulu-Hilo and Honolulu-Lihue routes 13 and 18 times a day, respectively. That will allow it to maintain its stranglehold on high-fare business traffic between the islands, as it offers far more schedule options than its new rival.

More Hawaii flights to come

Notably, Southwest's recent announcement of additional Hawaii service didn't include any routes from San Diego -- the fourth gateway city it named last year. Even with the decision to stop flying to Newark, Southwest Airlines doesn't have a lot of spare capacity to start new routes right now.

Thus, San Diego-Hawaii service will have to wait for the return of the 737 MAX. Fortunately for Southwest Airlines fans, that could happen as soon as January. This would potentially put the carrier on track to start its first San Diego-Hawaii flights in March or thereabouts. Southwest may also consider adding additional flights to Hawaii from Oakland, San Jose, and Sacramento around then.

By next spring, Southwest Airlines will probably have completed the first phase of its Hawaii growth plan, by launching service to the island chain from four California cities and building an interisland route network. That will put the low-fare carrier in a position to consider future growth opportunities in Hawaii, as it looks to build on its early success there.

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Adam Levine-Weinberg owns shares of Alaska Air Group, Hawaiian Holdings, and Southwest Airlines. The Motley Fool owns shares of and recommends Southwest Airlines. The Motley Fool recommends Alaska Air Group and Hawaiian Holdings. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com

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