Southwest will start service to Chicago’s O’Hare International Airport and Houston’s George Bush Intercontinental Airport next year, the airline said Monday. The moves mean expanding Southwest’s already large footprint in Chicago to take on United Airlines Holdings Inc. UAL -1.99% and American Airlines Group Inc., AAL -2.12% and in Houston, to an airport where United dominates.
Southwest’s move is one of the first signs of the tectonic shifts under way in the industry as it tries to emerge from a crisis expected to have a deeper and longer-lasting impact on airlines’ finances than 9/11. Travel demand plunged 96% in April and the recovery has been partial, slow and inconsistent.
Though nearly 985,000 travelers passed through U.S. airports on Sunday—the highest level since mid-March—passenger volumes are still down over 60% from a year ago, according to the Transportation Security Administration. Airline executives say it will take a widely distributed vaccine for Covid-19, the illness caused by the new virus, to help bring demand back to 2019 levels.
“What do you do about it—just wait for [Covid-19] to be over? No, we’re not going to do that,” said Andrew Watterson, Southwest’s chief commercial officer, speaking at an aviation conference Monday. “Ultimately, to get out of this, we need more traffic, more revenue on board.”
United said it would “continue to compete vigorously with other airlines at both airports, like we do at airports across our leading global network.”
American, which has a significant presence at O’Hare, also will soon face Southwest at its hub in Miami, where Southwest recently said it plans to start service as well. “We look forward to continuing to deliver for our customers and provide access to the places they value the most,” a spokeswoman for American said.
Southwest came into the crisis with some advantages over competitors such as American and United. Its network is largely domestic, so it hasn’t suffered the same hit from the loss of international markets and doesn’t carry the costs associated with operating a global network. It also had a stronger balance sheet than its peers, which has allowed it to raise billions of dollars cheaply while leaving many of its valuable assets free for future financing.
American, United and Delta Air Lines Inc. DAL -0.52% have faced some of the airline industry’s steepest losses this year, as corporate and international travel have dried up. Third-quarter results, which are scheduled to be reported in the coming weeks, will indicate how far the U.S. airlines have come in cutting costs and how well positioned they are to weather a prolonged downturn.
Southwest has been more aggressive in expanding into new markets and less inclined to cut capacity than some of its rivals. It kept more than 60% of its 2019 scheduled capacity during the six months from April 1 through September, according to Cirum, an aviation-data firm. United, which has been the most conservative major airline, maintained roughly one-quarter of its 2019 capacity during that period.
Some elements of the eventual recovery could play to Southwest’s strengths. Rivals including United, American, Delta and Alaska Air Group Inc. have had to eliminate many change fees that once brought them billions of dollars in revenue as they try to get passengers comfortable booking trips again, mirroring a longtime Southwest strategy.
Chief Executive Gary Kelly has said in recent months that Southwest can thrive when fares are low, which he has said will likely be the case when traffic comes back. Fares have been erratic in recent months. Analysts say that while some fares are higher than they were a year ago, carriers have also been offering some deep discounts and promotions in an effort to win back travelers.
Southwest’s moves Monday also mark a shift in strategy for the carrier, which built itself into the largest domestic airline by focusing on secondary airports in large cities. The airline already dominates the smaller airports in Chicago and Houston, carrying 96% of passengers at Chicago’s Midway Airport and 94% of Houston’s Hobby Airport. Southwest once served Houston’s larger airport as well but pulled out 15 years ago, saying it had been unprofitable there and couldn’t afford to remain at both Houston airports.
Southwest in recent weeks said it is adding dozens of new nonstop routes in the next two months. It will begin service next month to Miami, a hub for American. Traditionally Southwest has shied away from adding cities to its network that it only intends to serve for part of the year, but it is embracing that strategy now, with new seasonal service to ski areas in Colorado.
Southwest isn’t immune from the pandemic’s effects: It incurred a $915 million loss for the second quarter and has had to backtrack at times this year as it confronted weak travel demand. The airline had pounced on what appeared to be the start of a summer travel surge, only to have to reverse course and pull down capacity when coronavirus cases began to climb and states imposed new travel restrictions.
“Demand was on a tear early summer—it’s not anymore,” Mr. Watterson said Monday. “We will match supply and demand in a prudent way to minimize cash burn.”
Its efforts to keep its workforce intact without resorting to mass furloughs like United and American—which have together furloughed more than 32,000 workers—might soon run into trouble if Congress doesn’t approve more financial assistance for airlines. Mr. Kelly has said Southwest can avoid job losses if unions will agree to accept pay cuts, but so far they have resisted.
Other airlines have also been redrawing their networks to respond to shifts in demand during the pandemic. Leisure travel, while still a fraction of normal levels, is all that remains, and airlines have responded by adding flights to beaches, ski destinations and mountain regions.
Some other airlines are also seizing opportunities to ramp up in traditionally crowded airports. JetBlue Airways Corp. JBLU -2.90% recently announced new routes out of another United stronghold, Newark Liberty International Airport in New Jersey.
Write to Alison Sider at [email protected]
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