Will the “Southwest Effect” Lower Prices to Hawaii?

A study published by the University of Virginia’s Darden Business School showed that, on average, one-way fares were $45 lower when Southwest served a market nonstop.

“The presence and magnitude of the Southwest Effect has endured through time,” the study’s abstract says. “Even today, when new markets have frequently been affected already by Southwest’s fares on connecting services, the Southwest Effect still shows, on average, an additional market fare reduction of 15 percent, and corresponding traffic increase of 28 percent to 30 percent from the introduction of nonstop service by Southwest.”

According to Southwest, before its service began between Houston and Boston in mid 2013, fares were $253 per passenger. Then, after Southwest began its service to Boston, fares dropped 27 percent to $185, and there was a 44 percent increase in the number of passengers on the route.

The “Southwest effect” of decreased prices and increased traffic after Southwest enters a market has been seen over and over again, so the question is will Southwest’s entry into Hawaii mean lower prices for travelers? 

Hawaiian Airlines Chief Executive Officer Mark Dunkerley doesn’t think so.

“I think a lot of the places Southwest goes into there’s sort of limited competition to begin with,” he said. “And so prices may be a little higher than they otherwise would be. That isn’t the situation in the markets that we fly. We fly against lots of competitors. I mean, coming out of places like Los Angeles we fly against already four or five different competitors. It’s a very competitive marketplace. Adding one more competitor into that marketplace is unlikely to have the kinds of effect of adding a competitor when the competitor is sitting on a monopoly, for example.”

 

According to Flight Connections, LAX (Los Angeles) to HNL (Honolulu) is served by United, Delta, American, Hawaiian, and Virgin America with flights running daily. But that’s not the case for other secondary West Coast airports. For example, OAK is only served by Alaska 3X a week and by Hawaiian daily. SAN is also only served by Alaska and Hawaiian with daily flights.

As for OGG (Maui), only Alaska offers flights to SAN and only Alaska and Hawaiian offer flights to OAK and SJC while all five of the above carriers fly daily to LAX.

It might be tougher for the “Southwest effect” to take hold at a busy hub like LAX but it might be easier to have its effect felt on routes to and from smaller airports like OAK or SAN.

Personally, I think the Hawaiian CEO might be underplaying the effect, as the study found “[w]e find no evidence that the Southwest Effect has been eroded or overtaken in significance or magnitude by other airlines.”  Dunkerley points out that there’s not limited competition in the markets they fly in but I don’t think that’s true of places like OAK where it’s only Hawaiian and Alaska at play. 

I think it’s entirely possible that these secondary markets like OAK and SAN could see price reductions to HNL and/or OGG due to Southwest’s presence when those flights roll out likely beginning next year. 

 

Cover photo by Dhilung Kirat via Flickr.