Southwest Takes Off Internationally – Part 1, Houston Hobby

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http://airwaysnews.com/blog/2015/09/21/ ... ton-hobby/

Southwest Takes Off Internationally – Part 1, Houston Hobby
Alex McIntyre
September 21, 2015

When Southwest Airlines announced its intentions to buy AirTran Airways back in 2010, it ventured into some wholly new territory: international flying. While Southwest has cleared many hurdles over its storied history, the acquisition of AirTran gave it the opportunity for the first time to journey beyond national borders in an immediately sizable way. AirTran sported a platter of foreign destinations, a list which Southwest has since absorbed and augmented.

To facilitate its new foreign traffic, Southwest identified three airports to serve as international gateways. Houston-Hobby (HOU), Fort Lauderdale-Hollywood (FLL), and Baltimore-Washington (BWI) will handle the lion’s share of internationally bound passengers. Fliers traveling abroad on Southwest will more than likely find themselves connecting in one of these three facilities.

Houston, Fort Lauderdale, and Baltimore share a number of common threads as waypoints for the airline. Each airport seems to consistently mesh with Southwest’s traditional model of skirting larger, more delay prone facilitates in favor of smaller, secondary airports enjoying more liberty from congestion. Hand picking the three facilities it did reinforces Southwest goal of providing, among other things, cost competitive and timely service – fundamental elements of the airline that hardly change as it broadens its range.

Additionally, Southwest’s foray into the international market has been accompanied by significant investments in new airport infrastructure in each of the new internationally-designated facilities. It’s an intriguing business move, as none of the three airports appear likely to experience a sufficient capacity increase that would necessitate expansion. Most practically, the new facilities will allow Southwest to concentrate its international operations in a narrow and especially equipped premises, which likely mitigates some of the operational risks involved. But more broadly, financing a large slice of the developments (especially in Houston) signals Southwest’s long-term commitment to the routes and potentially its willingness to continue bulking up offerings in the near future.

But similarities aside, each facility uniquely offers Southwest its own twist and constellation of benefits. With international service still representing an extremely small share of Southwest’s overall business, it might have just as easily chosen to funnel all passengers venturing outside the United States through one uniform location. In this series, we attempt to unpack the airline’s trifold selection of Houston-Hobby, Fort Lauderdale-Hollywood, and Baltimore-Washington, identifying some strategic importance along with potential pitfalls associated with each facility.

Houston arguably attracts the most limelight, with Southwest prepared to open a new international terminal at the airport on October 15. The facility will feature five gates, with four belonging to Southwest and the other remaining open for common use. Sufficient space also exists to add several more gates in the future, should the airline choose to do so.

Quite interestingly (and almost certainly non-coincidentally), October 15 marks almost exactly a year from the lifting of the Wright Amendment at nearby Dallas Love Field. Southwest probably wishes it could feature similar international opportunities from where it houses its headquarters in Dallas, but with an airport already pressed to capacity and one barred from international flying, the airline turns to Houston to shoulder some of its traffic abroad.

Hobby’s relationship with Southwest dates back to the airline’s origins – it marks one of the first three cities served by the old intrastate start up. So perhaps it just seems natural Southwest might make a sizable international leap from its home turf, using “Space City” as a launchpad.

But beyond historic importance, location clearly plays an important role in Houston’s selection. It functions as an extremely convenient channel for passengers traveling south, with Mexico resting along the Texas border. United certainly thinks so as well, servicing a number of southbound routes from George Bush Houston Intercontinental Airport (IAH) across town (and American doing the same at Dallas-Fort Worth International Airport just several hours north). Southwest appears focused on exploiting this geographical advantage, with a total of nine international routes set to operate from the airport by November.

Houston’s location benefits Southwest not only in terms of its proximity to most of its international locations, but also due to its ability to appeal to its Texas base. While clearly an important carrier domestically, and now internationally, Southwest maintains a particularly strong reputation in its home state of Texas. Houston will function as an especially attractive connection point for this audience.

Not to give the impression that Houston’s location exclusively benefits Texas residents however, its more central location nationally will also help Southwest capture a wide breadth of fliers from its route network across the country. Hobby currently handles 151 daily departures (a number set to increase as Southwest begins feeding its international flights) and connects 42 cities with nonstop service, so fliers nationally too may notice a quick stop in Houston on their next flight down south.

Additionally, the Houston market remains a bit dry in terms of the international service that interests Southwest specifically. Even with George Bush Intercontinental Airport (IAH) lingering close by, four of the eight routes Southwest will debut (it already flies to Aruba) will introduce new competition to the area, even more strongly appealing to its local and national base. CEO Gary Kelly believes the new routes will help provide some “much needed relief from some of the highest international fares in the country.” The competitive international gap that currently exists in Houston will allow Southwest to more easily undercut its rivals (namely United at IAH) and fill its flights, which is always an immediate concern for an airline when introducing a new route.

Southwest’s wholly dominant position at Hobby also probably constituted an important factor. According to Department of Transportation (DOT) data, Southwest (along with AirTran’s operation, which ceased in December) composed about a 92% market share at the airport over the past year. That figure alone overly distorts the airline’s true representation in the broader Houston area, with the airport on the northern edge of town still posing a fierce threat. But Southwest’s strong command at Hobby allows it the liberty to run its own operation free from much external interference from other airlines – a primary influence as it seeks to build Houston as one of its most prominent connectors.

Southwest quickly turns its planes in Houston, with aircraft spending only about ten minutes to taxi out (a measure which reflects best on the ability of an airport to influence an efficient operation). This comparatively low figure speaks loudly to the efficiency Hobby facilitates, especially with United’s planes requiring nearly double that amount of time at Intercontinental. Again, Hobby fits almost perfectly with Southwest’s model of opting for secondary airports to maximize efficiency and minimize delays, which will remain paramount as the airline begins to engage with some more tedious international procedures.

Of its three international gateways, Houston easily qualifies as the most immediately relevant one, with the show to unfold on October 15. The airline already made some waves in the city earlier in the year, declaring 2015 as a “celebration” of Houston at its annual shareholders’ meeting, which it held outside of Dallas for the first time. Given all that’s transpired in Houston so far and the airline’s monumental step in international flying centered at Hobby, that description indeed captures the truth fairly accurately.