Southwest Airlines added 18 new airports across 2020 and 2021. While some of them were entirely new destinations, like Palm Springs or Myrtle Beach, others were expansions into secondary airports in major metropolitan areas. However, those 18 new airports plus the airline’s major expansion in Hawaii have stretched the airline thin in terms of aircraft available to rebuild the airline’s pre-crisis schedules. Speaking to investors earlier this month, Southwest Airlines’ executives discussed why they plan on keeping service to all of the new markets.
Southwest’s 18 new markets
Southwest Airlines started service to the following new airports in 2020 and 2021:
- Miami (MIA) from November 15th, 2020
- Palm Springs (PSP) from November 15th, 2020
- Steamboat Springs (HDN) from December 19th, 2020
- Montrose/Telluride (MTJ) from December 19th, 2020
- Chicago O’Hare (ORD) from February 14th, 2021
- Sarasota/Bradenton (SRQ) from February 14th, 2021
- Colorado Springs (COS) from March 11th, 2021
- Savannah/Hilton Head (SAV) from March 11th, 2021
- Santa Barbara (SBA) from April 12th, 2021
- Houston Intercontinental (IAH) from April 12th, 2021
- Fresno (FAT) from April 25th, 2021
- Destin/Ft. Walton Beach (VPS) from May 6th, 2021
- Myrtle Beach (MYR) from May 23rd, 2021
- Bozeman (BZN) from May 27th, 2021
- Jackson (JAN) from June 6th, 2021
- Eugene (EUG) from August 29th, 2021
- Bellingham (BLI) from November 7th, 2021
- Syracuse (SYR) from November 14th, 2021
Some of them only started with a few daily flights to key Southwest bases, like Eugene or Syracuse. Others were much larger airports in terms of city growth, like Myrtle Beach. Since their inaugural service, Southwest has added and expanded service from some of these destinations.
While some of them were extensions into some larger business markets or cities where Southwest already had a sizable presence, like Houston, Miami, and Chicago. The remaining markets are mostly vacation destinations, like Myrtle Beach or Santa Barbara. These cities are more generally destinations for price-sensitive leisure travelers, which do not necessarily always lead to strong revenue performance.
Southwest is committed to those markets
When asked why Southwest was going to continue serving those destinations, incoming CEO Robert Jordan weighed in first, adding the following:
“Yeah, you could absolutely shut the 18 down and put those aircraft back to work. I say two things there. The 18 cities are working, number one. They’re performing and they’re contributing and so there’s not a financial reason to do that. Number two, just from a consumer and customer perspective, we don’t go into markets to then exit them when we have other better opportunities or things to do. We’re going to commit to the community. We’re going to commit as an airline to the routes. And so, we’re committed to the 18 cities.”
The driving force for this question was Southwest’s major network initiatives in 2022. The airline’s primary motivation is to start to restore the depth of its schedules. This means getting back up to the daily flight operations between primarily business or high-traffic markets.
Andrew Watterson, Chief Commercial Officer and Executive Vice President at Southwest, added the following:
“But fundamentally, you still have to match supply and demand and so the markets where we have, traditionally had density are business markets. And so, as Tammy outlined business travel, we still expect to be down in December down 55% to 60% versus 2019. We started year down 90%. So, it’s great progress. If we were just trying to go restore all the density right now, the demand is not there for business travel. And so, our plan is to pace back this density restoration as business travel comes back.”
While Southwest Airlines was able to add flights to Hawaii in 2019, the Boeing 737 MAX grounding put a crunch on its fleet count and led it to significantly scale back its expansion and fleet renewal plans. Then, when the crisis hit, Southwest Airlines faced an interesting opportunity.
Business travel was all but gone, leisure travel was the only part of the network that still had some signs of life, but overall, Southwest had to rethink its network and strategy in the interest of targeting new streams of revenue to allow it to keep flying. That was one of the major reasons why it started to add new cities and started to turn to a larger connecting network to fill up as many seats as possible and earn as much revenue as possible. That is why much of the airline’s major expansion centered around leisure-focused cities.
The fleet is a key part
Part of the reason Southwest can also keep flying to those destinations and rebuild the schedule is that it has a significant backlog of new aircraft. It is expecting to take, subject to certification, 72 Boeing 737 MAX 7 aircraft next year and has options for 42 more, which it is eyeing very closely. Southwest also exercised options to take 15 more 737 MAX 7 planes in 2023.
Even factoring in the 30 to 35 Boeing 737-700 aircraft the airline plans to retire annually, Southwest Airlines will still be growing its fleet. Net of retirements, at the end of 2022, Southwest expects to fly 814 Boeing 737 aircraft, giving the airline a sizable boost from the 727 aircraft it expects to fly in the first quarter of 2022.
Fleet plans may continue to change, and Southwest has the option to flex up or down on Boeing 737-700 retirements. However, what the airline does will depend on demand and how more high-demand, high-frequency travel starts to return.
The nice part about schedule depth is that Southwest can utilize those assets very efficiently. Just as an example, a new Boeing 737 can be used to add two additional daily roundtrips between, say, Dallas and Austin and separately add some additional flights up to St. Louis or Kansas City. Southwest traditionally likes to fly its aircraft with heavy utilization, and its interest in returning depth on more short-haul markets means that the addition of one aircraft has a larger impact on the return of schedule depth.
Southwest is not planning some major gauge increase, unlike most other airlines in the US, as it builds back its network. Sticking with what it knows, the airline’s plan to build the schedule back in the way that has brought it successful returns for years.
