Fare war?
Southwest's new code-sharing
agreement with ATA may
send passengers to Hawaii
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The deal would allow both airlines to sell tickets on each others' planes and exchange passengers. While it has the potential to increase visitor arrivals from the coveted higher-spending U.S. East, it could also create havoc and price wars among the airlines, said Rex Johnson, president and chief executive of the Hawaii Tourism Authority.
"This is the first time a big-time discounter has come to Hawaii," Johnson said. "When a Southwest or a JetBlue comes into a marketplace, the guy who owns the hub has to keep prices low to prevent the new player from getting a foothold."
While competition is good and perceived value can increase consumer demand, the downside is that it can also reduce airline profitability, said Frank Haas, vice president of marketing for the authority. It happened in Hawaii in the 1990s, he said.
When price wars reduced West Coast fares to $199 round trip, the airlines responded by decreasing the number of seats they offered to Hawaii, he said.
"If you save $10 bucks on a Southwest ticket, will it create a fare war? We are very concerned that the airlines that serve Hawaii continue to remain profitable," especially at a time when increased airlift to Hawaii could help elevate performance of the visitor industry to a record, Haas said.
"Hawaii is profitable right now and in general we like to dance with the people who brought us here," Johnson said. Legacy carriers such as Delta, United and Northwest have supported Hawaii's bid to grow tourism by increasing capacity.
Airlift from the eastern United States has increased 33.9 percent so far this year. The number of airplane seats is up 5.8 percent from the western United States, and despite a slow start to the year, airlift from Japan rose 2.9 percent, said Chris Kam, director of market trends for the Hawaii Visitors & Convention Bureau.
During the first 11 months of this year, the airline industry added 554,000 seats to Hawaii's visitor market, to about 9.5 million, far surpassing the 490,000 seats that were added for all of 2003, Kam said.
If a code-sharing arrangement between Southwest and ATA comes to Hawaii, it will boost arrivals by allowing the airlines to access passengers that they don't normally serve, Kam said.
Southwest's potential Hawaii connection was reported yesterday by the Wall Street Journal, which cited people familiar with the carrier's plans.
"The code-sharing agreement could make Hawaii an option," said Melanie Jones, spokeswoman for Southwest Airlines. She added that a complete schedule will be announced later this month.
The agreement will allow Southwest to exchange passengers with ATA at Chicago's Midway airport. Southwest also has acquired leases on six gates and a maintenance hangar from ATA.
Other potential cities where code sharing could be an option include Orlando, Las Vegas, Los Angeles and Seattle, Jones said.
"We expect that it could generate additional annual revenue in the $25 to $50 million range for each airline," Jones said.
The move could increase revenues for the state, too, Kam said.
"This arrangement would allow Hawaii to tap into a new customer base of loyal Southwest customers who might not have kept Hawaii top of mind before," he said.
When Aloha Airlines and America West, which operates out of the smaller markets, began code sharing it was very positive for Hawaii's tourism industry, Kam said.
"It allowed us to expand our reach without physically putting their aircraft in that market," he said.
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