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Will Southwest's entry into the inter-island market lower fares?

Will Southwest's entry into the inter-island market lower fares?

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Old Jan 3, 19, 3:10 pm
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Will Southwest's entry into the inter-island market lower fares?

One of the longest running sagas in USA commercial aviation is Southwest's much-delayed-but-supposedly-imminent entry into the mainland-Hawaii market. I guess this is a big deal for WN travellers -- who can then use their WN miles -- but it's a bit of a yawner to me. There are plenty of airlines that currently offer service to Hawaii and it's a competitive marketplace. I do not believe WN will materially lower airfares in that market (at least after a quick burst of promotional fares when they launch).

Of more interest to me is Southwest's statement that they will also offer inter-island service. To my knowledge, they haven't said whether they will do that immediately upon entry into the Hawaiian market, or later. This would be welcome news to me. Hawaiian is basically a monopoly carrier on these routes and -- surprise -- charges monopoly airfares. Many of these routes are well under 200 miles and airfares often start at $100 each way. I have to believe WN will charge less than this on advance-tickets and would bring some healthy competition into the marketplace. I guess we will see. Fingers crossed.
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Old Jan 3, 19, 3:34 pm
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Southwest doing inter island routing---I don't see it happening other than short island hoping like one route doing something like west coast city-HNL-OGG-west cost city

If there was a carrier to try to come in and do interisland it would be Alaska setting up a division of horizon.
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Old Jan 3, 19, 5:58 pm
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Originally Posted by djp98374 View Post
Southwest doing inter island routing---I don't see it happening other than short island hoping like one route doing something like west coast city-HNL-OGG-west cost city

If there was a carrier to try to come in and do interisland it would be Alaska setting up a division of horizon.
How much demand is there for inter-island flying anyway? I'm not sure there's room for a second carrier, but I also don't know much about that market so I could be wrong.

In any case, WN probably wouldn't even be able to do routing other than what you suggest due to 737 limitations and a desire not to have multiple aircraft types (at least until Boeing comes out with another jet that can do short hops without issues).
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Old Jan 3, 19, 6:32 pm
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With inter-island fares ridiculously high -- like $100 a flight -- there is definitely some room for a competitor. I don't think WN's aircraft size would be a big problem: HA does fly jets on these routes, and pax prefer them. $60 fares would greatly stimulate this market -- the old WN model! I would think the market would double if fares were cut in half. And HA is a relatively high cost carrier that WN should be able to compete against. I'd also note that WN's policy of allowing 2 free checked bags would be wildly popular inter-island as it's expensive to move stuff between the islands.

That said, this wouldn't be a cakewalk. I suspect HA would be a formidable competitor on its home turf. WN would have to offer multiple daily flights to compete. Will they be willing to? I don't know.
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Old Jan 5, 19, 10:15 am
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Originally Posted by iahphx View Post
With inter-island fares ridiculously high -- like $100 a flight -- there is definitely some room for a competitor. I don't think WN's aircraft size would be a big problem: HA does fly jets on these routes, and pax prefer them. $60 fares would greatly stimulate this market -- the old WN model! I would think the market would double if fares were cut in half.
Really? There are that many people in Hawaii sitting around, wistfully thinking "if only inter-island fares were half price, I'd fly twice as much!"?
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Old Jan 5, 19, 10:42 am
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Originally Posted by iahphx View Post
With inter-island fares ridiculously high -- like $100 a flight -- there is definitely some room for a competitor. I don't think WN's aircraft size would be a big problem: HA does fly jets on these routes, and pax prefer them. $60 fares would greatly stimulate this market -- the old WN model! I would think the market would double if fares were cut in half. And HA is a relatively high cost carrier that WN should be able to compete against. I'd also note that WN's policy of allowing 2 free checked bags would be wildly popular inter-island as it's expensive to move stuff between the islands.

That said, this wouldn't be a cakewalk. I suspect HA would be a formidable competitor on its home turf. WN would have to offer multiple daily flights to compete. Will they be willing to? I don't know.
Anybody can fill an aircraft by cutting fares.

All that matters is PRASM.

All the data point to a losing proposition, but perhaps everyone else has it wrong.
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Old Jan 6, 19, 10:18 am
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Originally Posted by DenverBrian View Post
Really? There are that many people in Hawaii sitting around, wistfully thinking "if only inter-island fares were half price, I'd fly twice as much!"?
Yes. Think about how many of your family and friends live 100 to 200 miles away. You get in a car and visit them. In Hawaii, you can't do that. All the ferries are gone so your choice is usually a $200 roundtrip ticket. Obviously, you don't visit them very often at that price.

Also, most folks in Hawaii live in Honolulu. Candidly, that's no Hawaiian paradise. If you want paradise -- and most people do -- you pretty much have to fly to a neighbor island. You'd love to do that, but $200 per person is a strong deterrence.

On the mainland, Southwest (before they became a higher-cost airline) would enter short haul markets, lower fares, and get people out of their cars. And that was when there was a choice to drive!

That said, when I carefully look at what WN executives have said, I don't think their entry into the inter-island market is imminent. It looks like that's a longer term plan. It would seem that their first flights will be limited to mainland-Hawaii. Somebody wrote on the web someplace that the most modern 737s wouldn't be so good for inter-island flying because their engines wouldn't cool fast enough between segments. So the planes they would fly from the mainland wouldn't really "work" for inter-island flying. If that's true, and WN would have to base a fleet in HNL, that obviously would be a deterrence to such service, and would take awhile to launch.
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Old Jan 6, 19, 3:39 pm
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Originally Posted by iahphx View Post
Yes. Think about how many of your family and friends live 100 to 200 miles away. You get in a car and visit them. In Hawaii, you can't do that. All the ferries are gone so your choice is usually a $200 roundtrip ticket. Obviously, you don't visit them very often at that price.
So the question becomes, would you visit them twice as often at a $100 roundtrip ticket? I don't think so. It's a classic price elasticity problem, and I doubt the demand for inter-island travel is as elastic as you think it is. <shrugs>
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Old Jan 6, 19, 11:12 pm
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Originally Posted by DenverBrian View Post
So the question becomes, would you visit them twice as often at a $100 roundtrip ticket? I don't think so. It's a classic price elasticity problem, and I doubt the demand for inter-island travel is as elastic as you think it is. <shrugs>
Perfect elasticity is not a requirement to prove the effect.

Actually, from decades of observation, interisland air travel is highly elastic for Kamaaina personal travel, but a bit less so for Kamaaina business travel. All air travel follows a similar pattern. My observations are supported by some other modelers:

https://econfix.wordpress.com/2015/0...or-air-travel/

http://www.vtpi.org/elasticities.pdf

Originally Posted by iahphx View Post
With inter-island fares ridiculously high -- like $100 a flight -- there is definitely some room for a competitor. I
Not sure why you would call that "ridiculously high." There are a ton of fixed costs involved in providing the travel product and also investor returns. Could they shave a few dollars off the price, I'm sure they could, but no one can sustain a much lower fare without losing something in maintenance, training, or personnel costs. Do you really want that?

Last edited by FlyinHawaiian; Jan 7, 19 at 10:12 am Reason: consecutive posts merged
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Old Jan 7, 19, 1:50 am
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Originally Posted by iahphx View Post
To my knowledge, they haven't said whether they will do that immediately upon entry into the Hawaiian market, or later.
The plan is to start the California to/from Hawaii routes before getting into the inter-island market. Here's a snippet of an article from May 2018:

The Dallas-based carrier told Pacific Business News that it will primarily focus on routes between California and the four major Islands before beginning interisland service.

“We will start interisland service once we build up our network and have enough frequency to make it meaningful,” [President Tom] Nealon said, adding that introducing interisland service by the end of next year would be “an awesome accomplishment.”
Source: https://www.bizjournals.com/pacific/...outes.amp.html
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Old Jan 7, 19, 7:47 am
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Originally Posted by 747FC View Post
Perfect elasticity is not a requirement to prove the effect.

Actually, from decades of observation, interisland air travel is highly elastic for Kamaaina personal travel, but a bit less so for Kamaaina business travel. All air travel follows a similar pattern. My observations are supported by some other modelers:

https://econfix.wordpress.com/2015/0...or-air-travel/

http://www.vtpi.org/elasticities.pdf
I haven't found any historical data on inter-island traffic. I assume it exists somewhere?

Of course, there would a lot of "noise" in that data. Like the growth of mainland-to-neighbor-island flights would naturally reduce demand for inter-island flying.

But I am certain that you're correct about Kamaaina personal inter-island travel being highly elastic. It would also be interesting to see the numbers on how many islands mainland visitors travel to on each trip. I would think that number would be slightly decreasing given the cost of island-hopping.
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Old Jan 7, 19, 10:40 am
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Originally Posted by iahphx View Post
I haven't found any historical data on inter-island traffic. I assume it exists somewhere?

Of course, there would a lot of "noise" in that data. Like the growth of mainland-to-neighbor-island flights would naturally reduce demand for inter-island flying.

But I am certain that you're correct about Kamaaina personal inter-island travel being highly elastic. It would also be interesting to see the numbers on how many islands mainland visitors travel to on each trip. I would think that number would be slightly decreasing given the cost of island-hopping.
I am hoping to find some local data, but have not yet done so. I'm sure there will be noise such as your observation, but there always is in data analytics.

Back in the day, HA used to offer a great fare in which travelers could island hop for one fee over X number of days.

My wife and I, who are used to go neighbor-island for weekends, have mostly stopped that for several reasons: The general hassle factor of getting into and out of airports, plus we decided that for just a few hundred more PP, we could actually be on the West Coast for a real change of scenery. So in a strange way, we were price elastic for local travel, but inelastic for mainland travel. How is that for "noise."

ETA: I have it on good authority that the only elasticity data that exists is within HA econometrics department.

Last edited by 747FC; Jan 7, 19 at 2:17 pm Reason: ETA comment
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Old Jan 8, 19, 7:20 am
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Aloha, all:

The OP's question is certainly valid and timely, but since it focuses on the response by Hawaii-based airlines (including HA), it seems best to shift this topic over from the general, travel-focused Hawaii Forum to the Hawaii-Based Airlines Forum.

Mahalo,

FlyinHawaiian, Co-Moderator
Hawaii-Based Airlines Forum
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Old Jan 8, 19, 12:45 pm
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Regardless of elasticity data, fares are actually much lower than "$100 each way". From DOT DB1B data, we can do some quick analysis and find that for YE2Q18 on HA, average one-way NI fares (pre-tax) are:

HNLOGG: $66
HNLKOA: $77
HNLITO: $83
HNLLIH: $63
OGGLIH: $92
OGGITO: $80
OGGKOA: $80
KOALIH: $100

So the average one-way HNL-OGG is $66 + 7.5% tax ($4.95) + $5.60 9/11 tax + $4.20 segment tax + $0.00 PFC (interisland exempt) = $80.75 all in, one way. And these are the average fares .... You won't find a single day in the next two months where HA doesn't have a $138 r/t HNL-OGG all in available on some flights, or around $69 o/w all in. Now these are all off-peak flights, but since the average is so low even the peak flights are fairly reasonable with enough AP. There's not really a whole lot of room for price stimulation, even if WN comes barging in with $49 o/w all in sales. Furthermore, WN relies on last-minute, high fare traffic to fund those sale fares. If we take a look at average fares from the same public data source, over the same time period on the intra-Texas flying WN does (similar stage lengths), we find that average fares are 70%+ greater.

DALHOU:$156
SATHOU:$145
AUSHOU:$152

WN won't be able to get any premium on business traffic in HI to fund ultra-cheap sale fares since HA already captures those customers at a lower fare than WN. If we go through the same "lowest fare available" for DAL-HOU, we find that the cheapest day-trip in the next week on WN is $467 r/t, vs. the $138 r/t HNL-OGG on HA.

Last edited by CRJ200flyer; Jan 8, 19 at 2:30 pm Reason: correct the tax calculation on HA ticket
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Old Jan 8, 19, 2:18 pm
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@CRJ200flyer : Thanks for sharing these data. Just one question: What constitutes the 7% tax. Our GET is 4.5 in Honolulu County, and 4% throughout the rest of the State.
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