On June 5, 2016, Southwest launched its first flights from Long Beach with 4 daily to Oakland. With a year’s worth of data from the feds now available, I turned to the numbers to see exactly what the impact has been and how it stacks up against other Southern California – Oakland markets. Is there really still a “Southwest Effect”? I suppose there is, but this one isn’t the sustainable transformation Southwest likes to tout.
Let’s start with a pretty basic metric here. How full have the airplanes been since Southwest put flights into a market that was previously a monopoly route for JetBlue?
As you can see, once Southwest started, it started slow, but then the airline began ramping up. Winter was bad with far too much capacity out there, but by the time the second quarter of this year came around, things had improved… more for Southwest than JetBlue. Load factors mean nothing in a vacuum, however. It’s only helpful when you know what kind of fares were filling those seats. So, let’s take a look at that.
Well, there’s that vaunted “Southwest Effect” in action, right? Southwest enters the market, fares plunge, and a ton more passengers can afford to fly. When Southwest came to Long Beach fares instantly dropped more than 10 percent to Oakland. The winter quarter was so ugly that fares were dirt cheap and loads were low for both airlines. But as we saw with load factors, things began to climb again in the second quarter, though still far below where they were. The number of passengers absolutely jumped. Look at what happened to local (non-connecting) passenger numbers (all airlines) in Long Beach – Oakland versus other Southern California airports.
I’m sure you saw that LAX spike stand out first, but I’ll mention that later. Looking further down, you can see there are now more people flying from Long Beach to Oakland than from Orange County, which is pretty surprising. (Then again, Orange County is a monopoly market of Southwest’s, as are Burbank and Ontario.)
But here’s the thing about that Southwest Effect. It’s supposed to be the permanent result of Southwest coming in and structurally lowering fares that were high due to lack of competition. Only one problem: the fares weren’t high before. To get a better sense of fare levels, look at Southwest’s average fares on each of the SoCal – Oakland routes.
As you can see, Long Beach fares are terrible if you’re Southwest and fantastic if you’re a traveler. Of course, Ontario, Burbank, and Orange County are monopoly markets for Southwest, so you’d think they might see higher fares. But when JetBlue had Long Beach all to itself, its fares were still well below what Southwest gets in its monopoly markets. (It also had fewer seats.) This wasn’t about Southwest trying to stimulate traffic with everyday low fares. This was about Southwest going in with abnormally-low fares to try to get a toe-hold in the market… and likely hope it runs JetBlue out.
So yes, it’s ugly, but could there be other factors at work here? Maybe the load factors in those other markets are much lower, and this is a new strategy for Southwest to test out.
Nope. Long Beach is middle of the pack here, so that’s not it. You might be surprised to see that Los Angeles (LAX) has the lowest load factor and fare, but you shouldn’t be. Southwest runs a very heavy schedule in that market since it’s squarely aimed at business travelers. It’s also the only market outside Long Beach that has competition. Spirit and Delta are both in there.
And now, time for a minor tangent. Take a look at LAX a little more closely. It has the most passengers of course, but it looks like Southwest got nervous about Spirit being in that LA-Oakland market. It dropped fares even further in the last couple quarters and took more local passengers (not shown here, but it’s true). That filled up the airplanes more, but it was probably revenue-neutral at best. Still, it may have kept Spirit further at bay. Tangent, over. Back to the point at hand.
In the end, Long Beach looks like a bloodbath. Southwest has certainly attracted passengers to the route, but only through rock-bottom fares that aren’t likely to be sustainable in the long run. If Southwest wants to win this war of attrition, it probably can. For JetBlue, it’s just another example of the airline’s problems with its West Coast strategy. From Long Beach, Oakland fares aren’t great for the airline, but they are better than flight with similar stage lengths to Reno, San Jose, and San Francisco. The only one of a similar distance that held up well? Sacramento. Oh, but Southwest started that in the third quarter of this year. I’m sure we’ll see that one tanking in the next data release.
Something’s gotta give, right?