We all know the story about Southwest. It came from nothing to become the most consistently profitable and beloved airline in America. All of that goodwill — along with all that cash — has been built up year after year, just waiting for a time when Southwest would need to dip into it. That time has arrived.
While the other large airlines in the US struggle with how to survive as much smaller entities in the future, Southwest has been following a different path. Last week, it announced its November/December schedules, and guess what? By the end of the schedule, the airline will be flat or above last year’s capacity.
This sounds insane considering that the Big 3 US airlines have said they expect to be about 30 percent smaller for the forseeable future. But Southwest has real advantages over the Big 3, and the airline appears poised to flex those muscles while the others can’t.
Sure, travelers love Southwest, and yes, the airline has a lot of money stored up. That has enabled it to cut capacity less than the other airlines. It hasn’t pulled out of a single airport, and it has built remaining frequencies to maintain connectivity in most markets. In a time where no airline has network consistentency, Southwest is about as close as it gets.
Beyond that, Southwest has structural advantages. It flies an almost-entirely domestic network, and everyone agrees that domestic travel will rebound first. In fact, domestic may surge as people shun foreign destinations for the comfort of not having to worry about travel bans or other restrictions foiling a trip.
On top of that, Southwest has, as usual, gotten lucky. The airline made a decision before this mess to start participating fully in Travelport and Amadeus global distribution systems (GDSs). This costs money, but it will also help Southwest get a bigger share of the now-smaller business travel pie. Even though leisure travel should rebound first, Southwest should be able to get more of whatever business travel remains.
With this positioning, Southwest could play it conservatively, but this latest schedule shows that is clearly not in the cards. Let’s start with a look at which cities are seeing more than 5 additional daily departures this Nov/Dec vs last, thanks to Diio by Cirium.
From November 1, Southwest has said it is zeroing in on four primary cities where it will focus its growth: Denver, Las Vegas, Nashville, and Phoenix. Sure enough, the data reflects that.
What do these four cities have in common? Chief Commercial Officer Andrew Watterson explained to me that these markets all have an existing, strong customer base. They also have a good mix of business — which they hope to capture more of, as discussed — and leisure — which is likely to rebound first.
I’ve heard from people at multiple airlines that demand is much better in the middle than along the coasts. That’s probably a mix of seeing coastal cities hit harder by COVID-19 and generally stronger beliefs on quarantining by populations in those areas. This would certainly help explain Southwest’s focus, but that isn’t everything. This has to also be about opportunism.
Take Phoenix, for example. Southwest hasn’t grown Phoenix in a long time. It has, instead, focused on building Denver. But now, Southwest sees Phoenix as a priority. It launches international service there in October, and it’s building a new concourse at the airport. I know it’s a small data point, but in this schedule, Southwest is launching Long Beach to Phoenix flights. It isn’t flying from Long Beach to Denver any longer, and it’s only doing Long Beach – Vegas on weekends. Phoenix, at least for Long Beach, will be the primary connecting point for heading east. That’s not something we’ve seen in a long time.
This all smells like opportunism. Which airline is said to be the most vulnerable right now? American. And which hub would Southwest love to have to itself? Phoenix. Now, I don’t think this forces American’s hand yet. It really likes having the counter-seasonal hub in Phoenix as a way to place capacity, but at what point do tougher decisions get made? Southwest certainly has an interest in forcing that issue by piling on.
And it’s not just Phoenix. Southwest is also adding Austin as its first mid-continent destination from Long Beach. Is it coincidence that this is the only other mid-continent city that already has service from Long Beach, albeit by JetBlue? I think not. Turn the screws. while achieving your goals.
The same could be said for Denver. United isn’t going away, but it will be a smaller airline. If Southwest thinks it can snag some business, it certainly has the ability to do so. And a city like Nashville is Southwest’s bread-and-butter. It can strengthen that and push back on ultra low cost carriers that have been pushing in.
Look beyond those four cities and see what other growth is in store. Atlanta sees a restructuring that cuts international and western flying in favor of more regional options. This hurts Delta. And the growth in Austin does as well. But Austin, like Nashville and St Louis, looks like a place where Southwest has dominated, wants to keep dominating despite other airline growth, and so it is stepping on the gas.
On the flip side, look at what Southwest is cutting back.
Let’s start with the big loser there, Ft Lauderdale. That’s a huge cut, but remember, domestic travel is coming back before international. With so much of Southwest’s Caribbean network touching Florida, it’s not really a big surprise to see Ft Lauderale, Orlando, and Tampa get cut back since they not only lose international, but they also lose feed that would have filled up more domestic seats. Cancun obviously loses for the same reason.
But take a look at those red bars. Those are California and the Northeast, the two places where the virus has hit harder than others. But there is a broader impact here as well. Those California markets are primarily longer-haul flights going away to places like Atlanta and Baltimore.
San Diego has been hit especially hard with several other markets going away. We also see shrinking on short-haul in California, plus we see Portland to Southern California disappear entirely. What do all those have in common? Those are/were all Alaska strongholds.
Alaska, remember, pulled back San Diego, so Southwest probably felt it could do the same after building up in an arms race. The same goes for intra-California and of course, from Portland to Southern California. Alaska is in better shape than most of the big guys. If Southwest has a limited number of aircraft to devote, it clearly seems to be focusing on those places where it stands to make the biggest gains.
If I were Southwest, I’d be doing the same thing. After all, what’s the point of building up a war chest if you never use it in the worst of times? The airline could be conservative, or it could make a move and try to win while others flounder. It has apparently chosen the latter.
