When it announced its second quarter earnings, Southwest rightfully spent a fair bit of time talking about the 737 MAX grounding and the impact it was having on the airline’s operations. At the same time, it announced it was pulling out of Newark entirely. The line was drawn between the two — and many have assumed that there was a direct correlation — but really, it sounds like more of a good excuse than anything else. Newark wasn’t performing very well overall, so Southwest decided to walk away despite the allure of hanging on to gate space at a constrained airport.
For those who have been watching Southwest’s ever-changing Newark experiment since it began in 2011, this isn’t much of a surprise. I took a look at government T100 data via VisualApproach.io and here you can see scheduled Newark departures by month and destination.
Southwest has bounced its Newark network around like a ping pong ball searching for anything that would be mildly successful, but it never succeeded in developing a full schedule that worked. In its 2Q 2019 earnings press release, Southwest didn’t try to hide its troubles.
The financial results at Newark have been below expectations, despite the efforts of our excellent Team at Newark.
Was Newark really that bad? It’s not a straightforward answer.
The only constants throughout Southwest’s adventure have been flights to Chicago and St Louis, and those were probably the best performers. The success in St Louis is likely because United has been flying 50-seat regional jets consistently on that route. There are no customer upgrade opportunities on what is a pretty long flight, so Southwest was instantly more competitive. That is bound to change as United flexes into larger-gauge airplanes, so there are storm clouds on the horizon for Southwest in that market.
But Chicago, well, Chicago is a mega-focus city for the airline and it has to work. In this case, you might be surprised to hear it worked better in Newark than at LaGuardia, the airport that will now become Southwest’s sole focus in New York City. (No, I don’t count Islip.)
According to Diio, Southwest’s average one way local fare for the year ending in Q1 2019 was $119 from Newark to Chicago… and only $103 from LaGuardia. Of course, LaGuardia is about 75 percent local while Newark is closer to 65 percent, but still… it does make you wonder why Newark is going while LaGuardia stays. They key to that is looking beyond these markets.
An Island In a Sea Of Red
One route — or two — does not make a station successful. Newark started with early short-haul flying, but a lot of it didn’t work (think Baltimore, Nashville the first time, Indy…). It veered into longer-haul flights that couldn’t be run from LaGuardia thanks to the perimeter rule, but those haven’t done well at all.
For example, sticking with the same data set, Oakland to Newark had a mere $142 one way fare. (If you want to compare, Oakland to Baltimore was more than $50 higher.) San Diego to Newark was a slightly better — but still not good for an airline with few ancillary opportunities — $159 each way (compared to $204 in San Diego to Baltimore). Oh, and United in the Newark-San Diego market? It pulled down a $280 average fare.
In other words, long-haul was sucking wind, and many short-haul options didn’t seem to work either. Could Southwest have shrunk its Newark operation down to just one gate and run a handful of flights to Chicago, St Louis, and maybe one other spot? Yeah, it could have. But then again, Southwest doesn’t like small stations. The airline seems to have decided that just wasn’t worth it in this case.
The Gateway to New York City
Southwest looks at New York differently than United or Delta. The airline’s strategy isn’t about competing for the New York/New Jersey-based traveler; it’s more about appealing to the Southwest loyalists who want to go to New York. (This isn’t much different than American’s strategy, in that sense.)
Newark faces increasing price pressure as Spirit and Allegiant ramp up, but more importantly — for the person going to New York as a destination — Newark is a tougher sell. Passengers just simply don’t look toward Newark the way they look toward LaGuardia as the gateway to the city.
It’s hard to say why that is after all these years, especially considering what a mess it is to fly in and out of LaGuardia these days. It may be that people just don’t think of Newark as part of New York City (which, of course, it’s not). Southwest undoubtedly made things worse for itself there as well by not coaxing its website to show both LaGuardia and Newark options when travelers searched for New York. They had to search separately for each airport, and that hurts for an airline that takes most of its bookings through its own site.
So Newark was never ideal for Southwest, but it was a way for the airline to get more capacity to serve the region when options weren’t available at LaGuardia. That recently changed.
(Positive!) Changes at LaGuardia
Southwest appears to have had a plan to find a way to grow enough at LaGuardia to enable it to walk away from Newark and still maintain the capacity going to the city. But how could it do that with LaGuardia being slot-restricted?
First, Southwest was able to pick up six more slot pairs from Alaska when that airline pulled out of the Dallas/Love Field to LaGuardia market. On top of that, Southwest recently moved into the new terminal at LaGuardia which means it can now operate 737-800s easily at every spacious gate instead of having to settle for wedging a 737-700 into some gates. This will increase capacity up to 175 seats per flight from 143.
These two changes mean that Southwest can put a lot more seats in the market at LaGuardia, and it won’t miss the seats it gives up in New Jersey… at least for now.
Will Southwest regret walking away in the long term? Possibly. When an airline planning department sees a constrained airport, it starts salivating wildly, because it fears it may not get back in if it leaves. Heck, if Lincoln, Nebraska put slots in, there would probably be a line waiting for access. (Note to Lincoln: You’re welcome for that new air service development strategy.)
While Newark isn’t currently slot-controlled, gate space is scarce. I figured Southwest would be like all the others and hold on to its precious assets as long as it could. Surprisingly, it didn’t. Did the MAX help that decision? Probably. But it was most certainly not the only reason, let alone the primary one.
Now Southwest will likely have to live with its current LaGuardia capacity as being its ceiling in New York… unless, you know, it decides to do something crazy like buy JetBlue. Wouldn’t that be interesting….