Southwest Airlines’ entry into the Hawaii market is likely to bring more competitive airfares from the U.S. mainland and also on inter-island routes. The good news may be tempered, however, by rising hotel rates and limited availability in Hawaii’s most popular destinations.
The launch of Southwest Airlines service to Hawaii has bargain-hunting travelers jumping for joy, but it’s also raising questions about the long-term impact on a destination where hotel occupancies and room rates are already among the highest in the U.S.
A feeding frenzy among consumers ensued when Southwest announced introductory one-way fares for as low as $49 on its new service, which began in mid-March with twice daily flights between Oakland, California and Honolulu.
The low-cost carrier also plans to expand service from Oakland to Maui on April 7 and to Kona on May 12. Service from San Jose, California to Maui, Honolulu, and Kona is slated to start in May. In addition, Southwest plans on starting inter-island service in Hawaii in April.
“Things went crazy—there was incredible excitement when the cheap fares were announced,” said Lena Brown, a Las Vegas-based travel advisor with Largay Travel. “I even got on my cell phone and tried to get one for myself, but it was too late.”
Hawaii tourism officials are also enthused about Southwest service. Chris Tatum, CEO of the Hawaii Tourism Authority, believes its impact will extend beyond the traditionally dominant West Coast market.
“Southwest connects to gateways all over the nation and undoubtedly some of their frequent flyers will want to use their points for Hawaii,” he said. “We definitely think it will attract some new visitors.”
Brown has already seen her Hawaii business jump as a result of the Southwest service, including planning a vacation for an Arizona family of six which had snagged the cheap fares. While she knows the introductory fares were a one-time phenomenon, Brown believes the entry of Southwest into Hawaii, which is already served from the U.S. mainland by United, Delta, American, Alaska and Hawaiian, will mean more competitive airfares across the board.
“I think we’re going to see better deals on all the airlines as a result,” she said. “I don’t expect airlines like Hawaiian to match fares with Southwest, but I do think we will see their fares come down if they have seats to fill.”
Brown and others are betting on the so-called “Southwest Effect,” a term coined in 1993 by the Department of Transportation to describe the drop in average airfares that often occurs whenever Southwest offers competition to legacy carriers on certain routes.
While he expects Hawaii airfares, which can be as high as $1,000 from the West Coast during holiday periods, to become more competitive, airline analyst Robert Mann of R.W. Mann & Co. predicts the impact will be moderate.
“There’s no reason for Southwest to vastly underprice the market,” he said. “But in the off-season and shoulder seasons you will definitely see some good deals on airfares to Hawaii.”
Mann also cautions that some consumer excitement may be tempered by Hawaii’s not-so-cheap land costs.
“A week in Hawaii is an aspirational goal for a lot of people, but then you are hit with the high average nightly rate in the islands,” he said. “There’s not much Southwest can do about that.”
At the same time, Mann noted that growing demand, not only from Southwest passengers but from the expanding Asia market, is likely to keep pushing Hawaii land costs up further.
“International travel to Hawaii from Asia/Pacific continues to grow, especially out of Japan which is operating large aircraft out of Narita,” he said. “Another factor is that Hawaii is widely perceived as a safe destination in comparison to Mexico.”
Among indicators of Hawaii’s popularity is that the state led the U.S. in average daily hotel rates last year, averaging $278 during the first three quarters, according to figures from the Hawaii Tourism Authority. The organization also reported that 9,954,548 visitors came to Hawaii in 2018, an increase of 5.9 percent over 2017.
“Last year was a record year for tourism for Hawaii, even with the volcano eruption on the Big Island and the fact that some people thought lava was covering the whole state,” said analyst John Berean, who tracks the Hawaii hotel market for HVS Hotel Management. “The forecast is calling for positive growth over the next several years. Southwest will definitely play a part in that.”
Berean noted that Waikiki and Maui, which have the highest occupancies in the state, are where Southwest service is likely to put the most pressure on hotel availability and drive room rates up further.
“Waikiki averages about 85 percent occupancy, which means that it’s virtually sold out at Christmas,” he said. “Maui, which attracts a higher-end traveler, will feel the impact less, but its rates will also be affected. The real beneficiary could be the Big Island, which has the lowest occupancies of the major islands and could use more business.”
Exacerbating the situation is that hotel development in Hawaii has slowed in recent years and is likely to stay dormant, Berean said.
“There really are no sites left in Maui for resort development,” he said. “In Oahu, construction costs are currently very high because of several big infrastructure projects underway, so anyone looking at hotel development is thinking twice about it.”
Could Hawaii grow too costly for most visitors or even become the next “overtourism” destination?
According to Tatum, the Hawaii Tourism Authority and others in the state are taking steps to ensure this doesn’t happen.
“We’re concerned not only with marketing tourism, but with managing it and keeping it sustainable,” he said. “For example, we’re directing more efforts toward getting people excited about the Big Island of Hawaii, which has struggled because of the volcano and storms. Encouraging respect for the land and traditions are also a big priority. It’s a balancing act.”
Brown at Largay Travel has no such concerns about Hawaii being the next overtourism locus.
“Hawaii offers a variety of price points for my clients and is certainly not more expensive than the Caribbean,” she said. “I also don’t have trouble with availability. In particular, there are a lot of villa properties in Hawaii, which are a great option.”
Southwest’s inter-island service is also expected to spark new competition in a market that has been the sole domain of Hawaiian Airlines since the demise of Island Air in November. Southwest will start service between Honolulu and Maui on April 28 and between Honolulu and Kona on May 12, in both cases offering four daily flights in each direction.
Southwest’s introductory fares on inter-island service, which are as low as $29 one-way, are also generating excitement, including among local residents like Ken Kimi, owner of A Touch Above Travel Services in Honolulu.
“Inter-island fares have gotten incredibly high because of the lack of competition—it can cost as much as $500 roundtrip to fly between Honolulu and Maui if you book at the last minute,” Kimi said. “It’s become prohibitive, especially for families. We’re already seeing fares come down, so this is great news.”
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Photo credit: Southwest Airlines President Tom Nealon greets arriving passengers on the inaugural flight to Hawaii March 17, 2019 after it touches down in Daniel K. Inouye International Airport in Honolulu. Stephen M. Keller / Southwest Airlines