Economic News

Southwest’s Hawaiian Entry Tanks Competitor’s Stock

After years of waiting, Southwest Airlines is officially headed to Hawaii. Thanks to the longer range of the Boeing 737 MAX 8s that the budget airline has added to its fleet, travelers will soon be able to catch flights from Oakland and San Jose to Honolulu and Kahului. What’s more these flights saw prices start at just $49 each way. Of course, while this may be good news for Southwest loyalists, other travelers, and the airline itself, it could be bad news for competitors.

Given Southwest’s low fares, observers have cited the aptly named “Southwest effect” as driving down the price of flights along certain routes. While Southwest’s $49 fares aren’t likely to last forever, there is mass speculation that rival airlines will be forced to compete on price. Considering the location in question, it should be no surprise that stock in Hawaiian Holdings, Inc. — parent company of Hawaiian Airlines — fell 10% on Monday as the first Southwest tickets went on sale. Further hurting Hawaiian Airlines was the fact that, in Southwest’s announcement, they revealed that they will not only begin offering flights from California to Hawaii this month but will also begin inter-island service between Honolulu and Kahului in April with more to come. Fares for these inter-island routes will start at just $29 each way. For the record other airlines such as United and Alaska also saw dips in their stocks Monday.

In a statement about the new routes, Southwest Airlines’ President  Tom Nealon said, “Beyond these introductory fares that celebrate our significant initial investment in serving the Islands, our Hawaii Customers will experience our everyday value in low fares that offer everybody the same brand standards: no fees to change your ticket and two checked bags fly free.” He continued, “We’re focused on bringing Hawaii an authentically Southwest experience with comfort across all seating—for every customer—along with in-cabin snack enhancements for our flights between the State of Hawaii and the U.S. mainland.” Meanwhile, in an interview with the Associated Press, Hawaiian Airlines CEO Peter Ingram seemed to welcome the competition, saying, “We think Southwest is a great airline and we are envious of a 40-plus-year track record of profitability, but it’s really not something new for us to have competitors coming into the market.”

As expected fares to Hawaii did drop as Southwest sales started. SF Gate reports that Alaska Airlines had roundtrip flights between California to Hawaii for a little as $198 for a time on Monday while prices on Tuesday were in the range of $278 to$298 aboard Alaska, Hawaiian, and United. Ultimately it will take some time before we’ll know the full impact of the “Southwest effect” on our 50th state but, so far, it seems like a win for travelers and a headache for investors in other airlines.

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