Tag: southwest

Southwest Heart

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Southwest unveiled their new livery this morning and while I am not a huge fan of the font or the colors, it seems they really thought about unifying their look. The bubble font is what bothers me the most. I thought bubble fonts were dead and we all said “good riddance”. I guess not.

A new commercial accompanied the livery unveiling and it’s a different marketing approach from previous Southwest spots and I like what they did. They talk about their customers, their commitment and how much their employees matter.

United Airlines Playing Fast and Loose with IAH

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The news of Houston’s Hobby airport receiving permission from the city to start international flights was big. Lots of people are happy, making the assumption that Southwest Airlines is going to significantly lower costs in the Houston-Latin America market. That is a different discussion, the real focus of my attention lately has been United Airlines’ reaction to the news.

United Express

Three big things were announced by United shortly after the news that Hobby would become an international airport; There would be 1,300 employees laid off in the Houston area, the Houston-Auckland route would be going away, and there would be other capacity cuts. For all three of these announcements, United directly blamed Houston city council and their approval of the Hobby expansion plans.

Laying off 1,300 employees now, due to an expansion that will not be complete until 2015 seems a bit strange doesn’t it? That is probably because these cuts have been planned for a while now and United is using the Hobby news as cover. United has not been specific over who will be laid off, but I would be willing to guess that a lot of the layoffs will not be focused on airport employees. United is going to try and consolidate their operations staff and their headquarters staff. Look for layoffs of back office employees and some front line folks.

The Houston-Auckland route cancellation is a bit different. There is a very real possibility that the route being cancelled is partially due to the Hobby Airport news. The idea behind the route was the connecting of Latin and South America to the Oceania region. Currently, the market is only served by Aerolineas Argentinas and Qantas, both offering limited coverage in South America. I have had a few people say to me that there’s no way United was basing this route on this traffic alone. Sure they were. The 787 is perfect to make money on the Houston-Auckland route with connecting traffic split between the U.S. and Latin and South America. Between passengers and cargo, the route could have been very successful. However, between fuel costs, the economy, and now the news about Hobby, United must have reevaluated the route and decided against it.

Lastly, United has said there will be capacity (flight) cuts due to the Hobby expansion. These cuts too, were probably planned before the Hobby changes ever gained traction. First, United is retiring all of their 737-500s and a lot of the older, pre-merger, United 757-200s. That’s a lot of capacity cut simply because the planes are older and inefficient. But blaming such cuts on the expansion of Hobby is a stretch.

In all of this, United is doing something that in my mind is very dangerous. They have been very vocal against the expansion of Hobby. The news organizations picked up on this and started calling it an “airline war” when the issue of Hobby’s expansion is one that concerns the city as a whole (or, at least it should). Instead, United has dived straight in and tried to fight this as bad for them instead of focusing on impact to the city, the city’s growth, and the infrastructure around Hobby. These are the issues that we as Houston citizens should be asking about.

I think United should have been upfront on why exactly international flights from Hobby would affect international traffic out of Bush Intercontinental, rather than just painting some broad strokes and hoping that people understood. What United has done has left a bad taste in a lot of people’s mouths because they can see through the “we’re laying people off because of Hobby expansion” rhetoric. The timeline does not match up.

In reality, the merger has made some inefficiencies in the IAH hub, especially for southern east coast to northwest coast connections. Why have all of that traffic go through IAH when you’ve got flights with empty seats leaving from Denver and an incentive from the city of Denver to push more traffic through that hub? But, using the Hobby news to cover your butt on such changes is bad public relations and passengers are able to see through the charade.

What United should have done is immediately offer some specials to the markets that Southwest considering entering. The goal should be to convince customers that you are the best carrier for a particular route, not to create ill will by announcing layoffs and route reductions. Compete on service, price, and reach and go head to head with Southwest.

The future of IAH is simple, United is not going to abandon a fortress hub. They’ll attempt their political game but it will backfire, we’re already seeing that, then they will be forced to compete but will now be digging themselves out of a public relations hole. I am willing to give United a little leeway but they are trying my patience and I’m sure other Houstonians feel the same way.

The city pulled the trigger on this plan solely focused on the wrong thing, airfare. City council needs to evaluate the impact to the surrounding neighborhoods and what improvements to infrastructure will cost (Southwest will not be picking up those costs) rather than thinking about how much the flight for their wild Cancun weekend will cost. The impacts to air traffic and passengers should be examined more closely as well. The CAPA study is a great resource. At the same time, United needs to reevaluate their “protest” of the city’s decision. Focus on how you can make the traffic you are relying on for these routes stick with you United rather than doing everything in your power to drive them away. This is Marketing 101.

Houston’s Hobby Airport Will Become an International Airport

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Yesterday, news broke that a press conference to take place at Hobby Airport was scheduled by Mayor Annise Parker. It was pretty easy to speculate what it would be about, the future of Hobby Airport and Southwest Airlines’ desire to fly international flights from there. It came as no surprise that the press conference was the confirmation of the speculation, that Hobby would have an international terminal and immigration facility built. What did come as a surprise were a few of the details.

  • Southwest Airlines will pay for the entire cost of construction
  • No passenger service charges will be added to tickets due to construction
  • For Southwest’s part in building of the terminal, they will receive preference on four out of the five gates being built
  • Southwest will pay no rent on the terminal or the customs and immigration facilities
  • Rebates will be made available for other carriers who start operations at Hobby and bring an increase in passengers
  • The City of Houston will be the owners of the terminal after construction

A piece that was kind of mentioned in passing was Southwest’s lease term. It sounded like a 25-year lease but I am not 100% on that.

All around, I’m sort of ambivalent. It is good news that the city is not footing the bill, it shows that Southwest is serious about the international operations. However, I do think the full ramifications of more traffic out of Hobby are not completely understood. None of the studies done looked at car traffic, parking, etc. These are important items for the community and I hope they are addressed before construction is underway.

The other piece is United’s threats of moving flights and how serious they are about following through on them. We may see a few flights announced from other hubs but I have no doubt that United is going to want to compete in the Houston market.

Debunking United’s anti-Hobby Arguments

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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.