While the U.S. celebrates Thanksgiving and the turning of temperatures to the frigid, we look toward paradise.

Hawaii is a paradise for some, including the welcome duo of warm sand and beautiful weather. Unfortunately, for Southwest, Hawaii brought the unwelcome duo of lagging fares and load factors.

The Dallas-based airline recently pulled back on some of its Hawaiian interisland flying, and it took all of 30 seconds of looking at the data to understand why.

Flying between islands in the middle of the Pacific isn’t exactly killing it for Southwest. in fact, when compared to the incumbent airline, Hawaiian Airlines, Southwest lags in both meaningful metrics: how many Hawaiians Southwest attracts and how much the airline can get them to pay.

According to DOT data, barely half of Southwest’s seats flew full between Hawaiian islands in Q3 2024, the highest level since Q4 2022. This is compared with over three-quarters of Hawaiian’s seats being filled between the islands.

It gets worse.

Even with anemic load factors, Southwest is only able to command 75% of the fare local Hawaiian Airlines is able to command. Even as fares have gradually risen through the pandemic and into 2024, the gap remains the same. Southwest has consistently lagged Hawaiian on local Hawaii markets.

The timing of Southwest’s pullback makes sense to us for three reasons:

1. The airline is rolling out new red-eye flights that reduce the opportunity of rotating aircraft through interisland markets after making the long crossing.

2. The recent fight with Elliott (that we think is better described as “in remission” than as any type of truce) has pushed an intense focus on making money. Southwest doesn’t do that between islands in Hawaii.

3. Hawaiian isn’t going anywhere. Well, not really. It’s already gone somewhere, and that somewhere is to Alaska (the airline, not the state). Any advantage from keeping pressure on a weak competitor is now toast. That weak competitor is now a strong competitor - one that can easily withstand a money-losing interisland fight, even with a long-time fare premium.

Taking a long-term look at the interisland market, we see that it is a fluid, if declining, market. Once a two-airline race between Hawaiian and Aloha, traffic remains below highs in the 1990s - a trend shown across the U.S. with short-haul flights.

Yet Southwest’s attempt to wrest control of the interisland market resulted in fewer people flying for lower fares than the local airline.

The end result is a simple observation: local matters to Hawaiians - a point that Alaska Airlines appears to understand well.

Maintaining the Hawaiian brand is far more than a point of nostalgia; it is good business.

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