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Tory Gattis with the Houston Chronicle debunking United’s stance regarding international flights from Hobby Airport →

What they are pretending will happen is that the fares and number of passengers on any given route are static, and that by splitting them with SWA, they will have to cancel IAH flights (because there aren’t as many passengers to fill their planes – SWA is “siphoning them off”). What happens in reality is the famous “Southwest effect”: SWA reduces fares, UA matches, and demand increases because the price dropped (simple supply-demand curve economics). SWA does not have to actually have lower costs than UA to reduce fares (although they do), they simply have to be willing to give up some of the fat monopoly profit margins UA currently enjoys on those routes. Even if their costs are exactly the same as UA, fares will come down and demand will be stimulated. This terrifies UA, of course, because not only do they lose the fat monopoly profit margins, but they have to offer more flights to meet the demand surge, pulling planes from elsewhere (either that or just cede market share to SWA). Of course, Houston wins all the way around: lower fares and more service.

What Mr. Gattis fails to mention is that Southwest has, in recent years, been less likely to lower their fares significantly over a long term when entering new markets. This was brought up by the city council when reviewing the Houston Airport System study, which, oddly enough, heavily favored Southwest. City council questioned the mentioned fare numbers due to their extremely low prices, something like $150 for Houston to Cancun. When the Houston Airport System and Southwest folks were put on the spot, they could only offer a rebuttal along the lines of “that is what we forecast in five years”. Unless Southwest expects fuel prices to plunge in the next five years, those numbers are unattainable. I cannot seem to find a mention of this anywhere on Mr. Gattis’ blog.

I do think that United’s arguments are a bit of posturing, but what do you expect? I do not think that demand will necessarily increase out of Houston if Southwest gets its way, simply because prices probably will not go down that much. Southwest will start flights at some rock bottom rate and two weeks later they’ll be close to matching what United has. Where Southwest will win out is one-way fares and last minute and walk up tickets.

The difference with “siphoning off” passengers in Houston versus say, New Orleans, is that Southwest is not sure they could fill the planes out of New Orleans, but they feel they could out of Houston. What Southwest is effectively doing is moving closer and closer to the legacy airlines by creating more and more of a hub-and-spoke system. If they wanted, Southwest could easily start international flights from any airport in the U.S. and in fact other airlines have done that; United offers seasonal service from Austin to Cancun, Raleigh-Durham to Cancun, etc. Instead, Southwest does not want to incur the costs of paying for immigration and customs officers at all of these airports, instead they want the city to split those costs with them.

I’ll end this by saying I do think international flights from Houston’s Hobby Airport are inevitable. The push for them is just too persistent for it not to happen. What I don’t understand is this anti-United sentiment. I read and hear comments about “losing the hometown airline” and if that is what is fueling this rage against United then it is in poor form. United still has one heck of a presence in Houston and it will continue to stay that way for a long time. Just as Mr. Gattis said, it’s about free markets, and that’s why United moved to Chicago, they have a better office/building agreement up there.

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