Southwest Prepares for Battle in California With Fare Cuts (Analysis – Part 2)

Fares, Southwest

Welcome back to the second part of a look at Southwest’s pricing changes in intra-California markets.  If you missed the dynamics that led to this change yesterday, I’d recommend heading over to the post first.  Now, we’re going to look at the numbers. Thanks to Henry Harteveldt at Atmosphere Research for providing the DOT Origin and Destination Survey data.

I went back to the beginning of 2016 and looked at the data through the second quarter of this year, the most recent data out there.  I know that this strategy wasn’t just about intra-California markets — it includes short-haul markets that behave the same, like LA to Vegas and Phoenix — but I looked only at intra-California flights for this analysis.  All the data you see below is solely for Southwest passengers flying nonstop within California.

Here’s a look at the total number of passengers along with the average fare in these nonstop markets as an aggregate.   (I excluded the Long Beach markets because they are crazy outliers, as you’ll see later.)

Anyone want to guess when the fare change went into place?   As Southwest explained, it introduced a new lower level walk-up fare, so the average fare did indeed go down while the number of passengers jumped.  Could this all be share shift?  No.  There was definitely some stimulation, and you’ll see it in the market-specific charts down below.  But was it enough stimulation to offset the lower average fare. Well…

On the aggregate, it looks like Southwest hasn’t grown passenger numbers enough to offset the fare decline.  Overall, revenues are down.  This puts real doubt into the idea that Southwest was doing this just to goose the market.  There has to be another reason.

But first, it is tempting to think there could be outliers here.  After all, there are a lot of markets that could behave differently from each other.  So, I broke out each market to see.   Here’s a look at the average fare.

Remember how I said Long Beach was an outlier?  Uh, yeah.  You can see just how low those fares are here.  But what I find most interesting is how the rest of these markets really moved in lockstep with each other with very few exceptions.  I’m sure competitive dynamics caused fares in LA to San Francisco to take a nose dive.  That’s the one you see in the tank with the two Long Beach markets.  But other than that, the average fares moved together.

Now let’s look at Southwest’s passenger numbers.

It’s similar here, but there are a couple more outliers.  You can see the increase in passengers from LA to San Francisco, though that undoubtedly didn’t make up for the fare plummeting.  Then there’s the drop in Orange County to San Francisco.  That was due to Southwest losing slots at Orange County, so it cut back.  It has since pulled out of the market entirely.  Other markets, however, behaved the same as each other.

Now let’s look at the overall revenue picture.

Pretty much across the board you can see a decline in revenue after the fare change went into effect.  Southwest says it’s very happy with the fare changes, but the numbers would suggest otherwise. 

This looks a lot like Southwest is running a prevent defense.  The airline knows that it can’t count on owning the California market without a challenge anymore.  Right now it’s Alaska that’s trying to make a move, but there’s also David Neeleman’s Moxy on the horizon that could decide to make waves if it saw the opportunity.  Instead of waiting to react until those airlines get a toe-hold, Southwest is making a definitive statement that it will fight hard, even if it means a negative financial impact for now. 

17 comments on “Southwest Prepares for Battle in California With Fare Cuts (Analysis – Part 2)

  1. What percent of passengers between Los Angeles & San Francisco use secondary routes I,e BUR – OAK Vs LAX – SFO for example. These secondary routes were SWA’s bread & butter for decades.

    1. SEAN – Well looking at the Southwest markets (so not smaller cities but including all airlines), there appears to be a total of 22,050 passengers per day. Of those, a little under half touch LA or SF.

      1. Thanks – was a bit curious as the number of flights rivals what you would find between DC, NYC & Boston.

        Happy new year to you & the entire Snider family.

  2. It seems like Spirit and Frontier have ignored intra-California. Why? Seems like a huge market for bear-bones cheapo air service.

    1. iahphx – They’re in there… sort of. Spirit has a couple flights from LA to Oakland, at least. But my guess is that Spirit just sees better opportunity elsewhere. The intraCal market has a fair bit of competition right now with Alaska ramping up. Spirit is probably smart to look elsewhere.

      1. I would think an airline like Frontier would have a reasonable competitive position against WN. The problem Frontier has when they’re going into a major hub city is that the hub airline has all sorts of competitive advantages operating out of their hub — including the ability to mix local and connecting pax. They can also trot out Basic Economy and sell a crummy product like Frontier and try to collect the ancillary revenue. But what can WN do to compete? They have name recognition (although they also have the disadvantage of not being on the CRS: Frontier and Spirit list and charge 5 bucks more that way). WN can sell you a much better product, but they don’t really have a way to sell you a cheapo bare bones product, and they try to upsell. And WN’s unit costs are going to be much higher. I guess WN could undersell its costs in a war of attrition, but what other competitive strategy could they deploy?

    1. A side note about CalPac–last Fri and Sat they apparently cancelled their CLD-IWA (or is it CRQ-AZA?) turns…well, Carlsbad-Willie (Mesa)…and, according to, has cancelled its entire schedule both yesterday and today (Mon/Tue).

        1. Just realized this is the same article oldiesfan6479 cited. Does have a little more detail, though.

          Can CPA get enough of a fare premium at McClellan-Palomar to offset the higher CASM of the ERJ-145? (Presuming they can keep them flying, that is.)

  3. Cranky,

    Nice analysis, but you’re missing one big factor – costs. The example I’ll use is my favorite market, SAN-SJC. In March of 2015, Southwest flew this an average of 8.5 times a day. In March of 2018 they flew it an average of 10.4 times a day. So in addition to revenue being down, their costs invested are up at least ~20% with the additional trips, not to mention the usual cost inflation. Profits have to be way down. This is likely going to get worse as summer of 2019 they are scheduled to be at 16 flights a day in this market. I don’t understand how their shareholders let them get away with throwing away tens of millions of dollars on “prevent defense.”

  4. Just curious, on any given WN intraCal flight, what is the percentage of PAX who are strictly intraCal. meaning not coming from/going to, say PHX, LAS, RNO, where there may be through interstate fares to/from the WN Cal cities, far cheaper than anything intraCal, making the intraCal fares largely “paper fares?”

  5. As a San Francisco native, I know that at the end of last year, Chase was heavily marketing a California-only bonus for the Southwest Credit Card…all California applicants who spent some minimum in the first 3 months would get a companion pass. Many people I know signed up for it…is it possible that the promotion was strong enough to create a dip in revenue intra-California? Since I assume those non-rev companion pass passengers would drag down the average.

  6. Isn’t this similar to the revenue/network strategy that was deployed at Hawaiian around 2012/13 that quickly steered Hawaiian down the path to losing money before quickly reversing course and cancelling the expansion plans? Seems like a common theme going on here before someone made a departure to Southwest. I can’t wait for Wall Street’s take at the end of 2019 on Southwest stock after California and Hawaii start eating away at the once lucrative profits.

  7. I certainly don’t mind the ridiculously cheap fares as a Bay Area-based flyer. Something is going to have to give eventually, though. AS is still not doing any intra-California from OAK (I can’t believe they have all those ads in Oakland and at the airport and only 3 routes at OAK), and WN seems to be somewhat pulling back where AS is strong at SFO. Maybe a truce will see AS taking control at SFO, and WN keeping their position at OAK.

    For SJC, seems like both AS and WN are losing vast sums to grow intra-California and otherwise. Remains to be seen what will happen there. Exciting times – for everybody but shareholders. Big piles of money on fire right now.

    1. All that advertising at the airport, then all the bus stops, the Ford bikes, BART advertising, and even Oakland-centric advertising (“Bring it in Oakland”) at SFO. It’s almost like there’s been some miscommunication between the market people and the route planning people.

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Cranky Flier