By now you’ve likely heard about David Neeleman’s new airline, Moxy, which I hope is a temporary name. While full details are sparse, we can already see the outlines of how David would like this to come together. If any airline is going to be unhappy with these plans, it’s Southwest. This model strikes at the heart of Southwest’s bread-and-butter markets.
As reported, the general plan is this:
- Buy 60 CS300s
- Go with a low-cost but high-frill model
- Fly between a slew of secondary airports
- Get rich
If this sounds like some crazy plan to you, then you aren’t alone. Normally, I’d be tearing an idea like this to pieces as I do with most hare-brained start-ups. But I learned something important long ago…. Don’t ever bet against David Neeleman.
Time and time again David has found a way to churn out winning airlines. While there are similarities between some of the efforts he’s made, there are also stark differences. He just always seems to find a way to make things work in a way that no other person has. If anyone has one successful start-up airline in their lifetime, then they should be happy. David, meanwhile, is going to have to start using fingers on his other hand to keep track. Because of that, any idea he puts forward is worth further scrutiny. Let’s do it.
First, it’s important to note the biggest difference between this and JetBlue, the airline he started nearly 20 years ago. JetBlue was an instant success primarily because the airline swooped into JFK, scooped up a ton of slots, and created an instantly-defensible position with no chance for other new entrants to step in. Sure the product helped propel success, but it was really that cache of slots at JFK that was the gold mine. That does not exist in this new model.
This airline will apparently look to fly from uncrowded secondary airports, so anyone would be able to come in if they so chose. There are plenty of secondary airports around, but few of them are overly attractive on the surface. New York has Stewart, way up the Hudson River, or Islip out on Long Island. Boston has Providence and Manchester. LA has Burbank, Ontario, Orange County, and Long Beach. Orlando has Sanford. Tampa has St Pete. Charlotte has Concord. Phoenix has Mesa. Dallas/Ft Worth has Ft Worth’s Meacham (among others). Detroit has City Airport. San Diego has Carlsbad. You get the point.
Some of these airports, like Providence and Islip, saw big growth when Southwest came to town. But once Southwest realized the revenue at more congested primary airports was so much better, it muscled its way in and slashed and burned secondary airport service in its wake. Providence used to have enough Southwest service to appeal to Bostonians. Now it just has enough to make it appeal to the locals.
The last two on that lengthy list, however, are different, because Southwest and others can’t really serve those airports well today. Runway restrictions mean that your normal narrowbodies can’t go all that far from those fields. (In Carlsbad, they can’t operate at all.) But throw the C-Series CS300 in there, and suddenly you can serve those airports. The CS300 is a key weapon in this fight.
The C-Series as a Weapon
With 60 on order, this new airline will be major customer for the C-Series right off the bat. I have no doubt that these things were purchased at an incredible bargain. The C-Series is a great airplane, but other than with Delta, it has had trouble finding a home in the US. According to Airline Weekly, this airline will put in up to 4 classes of service with flat beds on longer flights. That means the configuration is going to be somewhere between 120 and 145. In other words, it’s fairly similar to a 737-700 but it’s far more comfortable (5 across instead of 6, quieter, big bins, huge windows, etc) and economically it’s an easy winner against the Boeing entry-level jet.
Is this an artificial barrier? To some extent. Sure, any airline can go buy the C-Series if it wants, but most airlines have stayed away. For some, it’s an issue of commonality. Airlines that already support the 737 family would heavily weight a 737-700 purchase (*cough* United *cough*) just for that reason. For others, like Delta, the interest in more in replacing shorter to mid-haul flying done by 717s with the smaller CS100. For an airline without any history, the CS100 and CS300 can be a nice family. But for airlines that already operate Boeings or Airbuses at the lower end of the range, it’s a tougher sell.
In particular, think about Southwest, that airline that should be most afraid of Moxy. This is an airline that continues to stick to its guns on operating only one aircraft type, the 737. It inherited a smaller fleet of 717s from AirTran but it quickly discarded them. In the meantime, Southwest has become more interested in adding 737-800s or MAX 8s. It wants bigger airplanes and it wants bigger airports.
Southwest Should Be Concerned
Even though Southwest’s growth has been focused on bigger airports, it continues to make serious money in its bread-and-butter markets, the mid-size cities around the country that have limited options outside of connecting through hubs on the big three. (These are the same markets that ultra low cost carriers are targeting, albeit with infrequent service.) Southwest knows it has the advantage, and it has jacked up fares over the years because it could. When Southwest has competition, it plays the low-fare game. But when it doesn’t, its fares aren’t so low.
Now, Moxy is showing an interest in these cities. Some are places that Southwest has scaled back. Remember how Providence used to be Southwest’s gateway to Boston? Well, now that Southwest has abandoned that strategy, Moxy wants to move in, or so the reports suggest. Moxy is going to try to beat Southwest at its own game by going into secondary markets and using that cost advantage to undercut the carriers at the big airports. It will also, if the plan holds, expand into secondary markets over time that have been largely forgotten by everyone except Southwest.
I’m if Southwest, I’m prepping my army of 737-700s to go fight this battle, but it’s going to be tough to do. Assuming Moxy has bag fees, multiple classes, a lower cost structure overall, and more efficient airplanes, it is going to be a formidable opponent. Southwest will look like the old network airline trying to defend its turf. Talk about the tables being turned….
If Southwest wants, it can outlast Moxy. It can fly some 737-700s around all day trying to compete, and it won’t care if it loses money. The rest of the operation can subsidize it. But Moxy will be a better onboard experience. While Southwest has stubbornly stuck to its guns on having one class of service, Moxy will give people options all the way up the ladder. The new airline will also be able to fly from airports that Southwest’s fleet can’t touch today. Southwest may like its operation in San Diego, bu suddenly Moxy can come into Carlsbad with the CS300. Oh, and Philly? Well, the CS300 can do transcons from Trenton. There are a lot of places like this around the US, some that will work better than others. But this is going to be a headache for Southwest.
Don’t get me wrong. I still worry about the viability of this plan, even though the details aren’t yet known. It’s going to require a ton of cash to survive the guaranteed Southwest response. But again, this is David Neeleman we’re talking about. It’s generally not a great idea to bet against him.