Southwest's long-awaited launch of Hawaii service on March 17 is likely to herald a period of unusually inexpensive flying to the 50th state. 

But while travelers are expected to win as a result of the new infusion of service between the U.S. mainland and the popular vacation destination, airlines that are already in that market could lose out. 

After delays triggered by January's partial shutdown of the federal government, Southwest finally began selling tickets to Hawaii on March 4, offering steep discounts over the course of a two-day sale on four nonstop routes from the continental U.S. as well as discounts on two one-stop routes and on two interisland routes. 

Thus far, the carrier's routes are from Oakland and San Jose, Calif., to Honolulu and Maui and, within Hawaii, between Honolulu and Maui and Honolulu and Kona on Hawaii Island. Southwest is also marketing one-stop routes from Oakland and San Jose to Hawaii Island. The carrier said it will announce schedules for Hawaii flights from San Diego and Sacramento, Calif., as well as flights to Kauai in the coming weeks. 

Perhaps not surprisingly, the steeply discounted tickets that Southwest offered on March 4 and 5, some as low as $49 one-way, sold fast, CEO Gary Kelly said at a March 5 presentation at the J.P. Morgan Aviation, Transportation and Industrials Conference.

"The Hawaii experience from yesterday is telling," Kelly said. "Some of the flights were sold out in hours with no marketing whatsoever with a press release."

Travel advisors expect interest to remain high.

"We are noticing that prices are going down through the Bay Area," said Marc Casto, a senior vice president of San Jose-based Casto Travel. "Adding Southwest makes a wonderful destination even more accessible to an expanding list of clients."

Geoff Millar, owner of Ultimate All Inclusive Travel, a Hawaii specialist based in the Phoenix area, said that having Southwest in the mix will put Hawaii on the map for more travelers.

For some clients, he said, "who they fly is Southwest, and they don't want to fly anything else." 

While flyers shouldn't get used to $98 roundtrip offers to Hawaii, they are likely to see substantial fare reductions until the market adjusts to Southwest's entry. The carrier hasn't said precisely how many routes it will fly to Hawaii this year, but executives have said they expect Hawaii routes to account for more than half its planned 5% year-over-year capacity increase. 

In a Feb. 19 investment note, analysts at Morgan Stanley estimated that Southwest would assign to the Hawaii market between 15 and 20 of the 25 additional aircraft it plans to put into its system this year. The result would be a 10% increase in overall flight capacity between the U.S. mainland and Hawaii by the end of the year.

Southwest's entry will increase capacity in the interisland market by approximately 15%, the analysts predicted. Coupling those increases with the introductory fares that low-cost Southwest can offer could lead to prices that are up to or more than 30% lower than they were before the Southwest entry. Low prices could persist well into the second half of 2020, according to the Morgan Stanley analysts, who also wrote that they expect Southwest to continue building its Hawaii network in 2020 in an effort to match the market share of competitors in the continental U.S.-Hawaii market. 

Such potentially steep price drops surely have the attention of the five incumbent carriers in the market. As of Morgan Stanley's Feb. 19 analysis, United was the market leader, offering 30% of mainland-Hawaii capacity. Hawaiian was next at 24%, followed by Alaska (17%), American (16%) and Delta (13%). 

Most exposed by far, however, is Hawaiian, which flies approximately half of its capacity between Hawaii and the U.S. mainland. In addition, on interisland flights, Hawaiian has since late 2017 competed only against tiny Mokulele, which operates a fleet of nine-seat Cessna turboprops.

About 25% of Hawaiian's capacity is in the interisland market, according to Morgan Stanley. Southwest's mainland-Hawaii and interisland routes add up to a combined exposure for Hawaiian of 75% of its capacity. That compares with exposures of approximately 10% for Alaska and well below 5% for the three legacy U.S. carriers. 

Morgan Stanley analysts predicted that Southwest's entry into Hawaii would cause Hawaiian's revenue per available seat mile, a key industry metric, to drop approximately 12% year-over-year in the second through fourth quarters.

John Grant, senior analyst for the airline analytics company OAG, said that compounding the difficulty of the Southwest entry for Hawaiian, as compared with the other airlines, is that Hawaiian has far fewer options in terms of moving capacity away from the Hawaii-mainland market. 

But Grant did point to one positive development for Hawaiian: the opening under a new international agreement of additional daytime flight slots between the U.S. and Tokyo's Haneda Airport in spring 2020. Last month, United, Delta, American and Hawaiian sent applications to the DOT for a total of 19 U.S.-Haneda routes, with Hawaiian asking for three additional Honolulu flights per day to supplement its one existing daytime route and one existing nighttime route. 

The DOT will award slot allocations to 12 of the 19 route applications. 

OAG data reveals that Hawaiian has been steadily growing its flying to Tokyo in recent years. In 2013, the carrier flew 142 flights to Haneda and none to Tokyo's other airport, Narita. Last year, Hawaiian flew a combined 999 flights to those two airports. 

Hawaiian has also built up service to the Japanese city of Sapporo over the past four years.

Grant said that if it is awarded new daytime routes from Haneda, Hawaiian could begin optimizing its schedule to connect passengers from Japan to the mainland through Honolulu. 

"What this highlights is Hawaiian's recent aspiration to develop service to the west of the Hawaiian Islands," Grant said.

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