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Southwest Expands Hawaii Operations, Offers Huge Sale

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Southwest Airlines (LUV) plans to expand its operations across the Hawaiian Islands.

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Southwest expands Hawaii operations

The company will launch several new flights between California and Hawaii early next year. Southwest will also add three new routes in the interisland route. All of the services will be available in mid-January 2020.

On Thursday, Southwest announced a new flight between Sacramento and Honolulu. The non-stop flight will take off for the first time on January 19, 2020, from Sacramento International Airport.

The new flights relate to the company’s expansion plan for the Hawaiian Islands. Southwest got regulatory approval to fly planes to the Hawaiian Islands from four California cities—Oakland, San Jose, Sacramento, and San Diego. Currently, the company operates services from Oakland and San Jose.

Southwest started its first Hawaiian service with a flight between Oakland and Honolulu on March 17. The company launched services between San Jose and Honolulu on May 5.

The company will start new flights from Oakland and San Jose to Lihue and Kona in January 2020. Southwest will also launch new flights between Honolulu and Lihue, Kona and Kahului, and Honolulu and Hilo. All of the services will start on January 19.

Huge sale on tickets

Southwest has budget-friendly fares. The company offered a blockbuster introductory fare when it announced the Hawaii expansion plans. Southwest provided a one-way ticket from California to Hawaii for as low as $99. According to media reports, the fares between the two destinations ranged from $179 and $199 for a one-way ticket on Thursday afternoon.

Similarly, for the interisland services, Southwest made a one-way introductory fare offer of $29. The tickets sold out hours after the blockbuster introductory offer on Thursday morning.

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Southwest’s big offer on Hawaii tickets could hurt Hawaiian Holdings (HA) and Alaska Air Group (ALK) the most. The two companies have the highest number of flight services on the island. Both airlines would have to keep competitive prices to retain passengers, which would hurt their revenues and margins.

MAX crisis delayed Southwest’s plans

The latest Hawaii expansion announcement shows that Southwest doesn’t want to wait until Boeing’s (BA) 737 MAX plane issues get resolved. Notably, the 737 MAX jets have faced a flying ban globally since mid-March following two fatal accidents within five months. Southwest owns 34 MAX aircraft. Currently, all of the MAX aircraft have been grounded.

Southwest planned to only fly 737 MAX planes across its Hawaiian route. The MAX aircraft is Boeing’s most fuel-efficient single-aisle jet. Therefore, operating MAX planes across the route would have allowed Southwest to offer more competitive fares. However, the worldwide grounding delayed Southwest’s Hawaiian expansion plan. The company plans to expand its services across the Hawaiian Islands with Boeing’s 737-800 model planes.

So far, Southwest stock has been on a rough ride this year. Despite reporting better-than-expected results, the stock has underperformed the broader market. The company grappled with several other issues. So far this year, the company has faced massive business disruptions due to the partial government shutdown in January, a rise in unscheduled maintenance work, and the Boeing MAX grounding.

Southwest stock has risen 3.7% YTD (year-to-date). The Dow Jones and the S&P 500 have risen 9.7% and 13.6%, respectively. The YTD gain is also higher than the iShares Transportation Average ETF’s (IYT) returns. IYT invests in Dow Jones US transportation stocks. The ETF allocated 18.2% in the passenger airline industry. IYT has risen 6.5% YTD.

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