Southwest Airlines has announced new service to Chicago O’Hare (ORD) and Houston George Bush Intercontinental Airport (IAH). Both airports are in cities already well-served by Southwest. Both are hubs for United Airlines. Does Southwest have a solid plan or will it fail like it did in Newark, another United hub?
Southwest Challenges United With New Service To ORD + IAH
Yesterday, Southwest announced new service to Chicago O’Hare and Houston George Bush Intercontinental Airport. No routes have been announced, though service is set to begin in the “first half” of 2021. Southwest has never served ORD but did serve IAH until 2005. In fact, when Southwest Airlines first began operations IAH was an original service destination.
Speaking of the new destinations, Southwest CEO Gary Kelly said:
“Southwest owes decades of success to our Employees and Customers who have supported our business in Chicago and Houston. Today’s announcement furthers our commitment to both cities as we add service to share Southwest’s value and Hospitality with more leisure and business travelers.”
What Strategy Is At Play Here?
To some extent, all airlines are grasping at straws during this difficult period. The playing field has been leveled to the extent that traditional bread and butter routes no longer are reliable performers. With business travel greatly depressed and likely the last travel segment to recover, airlines are looking to new routes in ways that would have unimaginable prior to the pandemic.
One strategy has been to add leisure destinations. For U.S. carriers that includes ramping up Sunbelt service, particularly to Florida and Mexico. That isn’t at play here. Another strategy has been to go wide instead of going deep. Hourly flights between hubs works well when there is demand to fill planes, but not during a pandemic. Eight flights per day have become 2-3 flights per day, leading to surplus aircraft, surplus staff, and an incentive to try out new routes.
I think that is at play here. Chicago Midway (MDW) is Southwest’s number one airport in terms of passenger seats. Houston Hobby (HOU) is seventh. For visitors, both are more convenient to the center city than O’Hare or Bush Intercontinental. For connecting passengers, HOU and MDW will remain “hubs” (in quotes because Southwest technically does not have hubs, though in practice it operates in a hub-and-spoke style from airports including MDW and HOU).
Instead, Southwest appears to hope to attract local travelers in which IAH and ORD are far more conveniently located. That’s smart in the sense that some North side residents in Chicago or Houston would never think of using Midway or Hobby. The problem, of course, is that Houston is a stronghold for United Airlines and Chicago is a stronghold for both United and American Airlines. With limited service and loyal clientele, will Southwest be able to even make a dent?
Why Challenge United Airlines?
I don’t think Southwest Airlines smells blood in the water or sees particular weakness on the part of United. Instead, it appears Southwest is simply testing the waters in places where it does not offer service.
Why not target Delta? Southwest already serves Atlanta, Cincinnati, Detroit, Minneapolis, and Salt Lake City.
Why not target American? Southwest already serves Charlotte, Miami (recently announced), Phoenix, and Philadelphia. Perhaps we’ll see Dallas Fort Worth (DFW) next?
Southwest tried to challenge United Airlines in Newark and ultimately pulled out. It struggled to gain traction and its routes were not generally profitable. As Kelly said in 2019:
“The financial results at Newark have been below expectations, despite the efforts of our excellent Team at Newark.”
Southwest also challenged United in Denver, a bit more successfully, though United responded strongly by beefing up service and preempting Southwest on Hawaii routes. Denver remains United’s most profitable hub.
Again, I don’t think Southwest sees particular vulnerability at United…it just wants to try two new big airports that happen to be United hubs.
Southwest plans to start service to IAH and ORD in the first half of 2021, though no new routes have been announced yet. It’s too soon to say whether Southwest will succeed, but consumers will. Expect a fare war involving American, United, and Southwest on any route Southwest decides to be a challenger on.
image: Southwest Airlines