Southwest Airlines Enters Newark Market

Leading low-cost carrier Southwest Airlines has announced its first services from Newark, to begin on March 27th, 2011. The Hub investigates the attraction of Newark for Southwest.

Southwest Airlines has revealed that from March 27th it will add services from Newark Liberty Airport (EWR) to Chicago Midway (MDW), to be operated six-times daily and St Louis, on a twice-daily basis. There is currently no service from Newark to Midway, although there are multiple services to Chicago O'Hare from United, American and Continental, with over 885,000 O+D passengers having flown this trunk route between July 2009 and 2010. Interestingly Southwest Airlines will compete directly on the St Louis sector with Continental Airlines.

Southwest's entry into the Newark market comes following a move from Continental and United to release 18 slots at Newark as a result of pressure from the US Department of Justice in the face of the proposed merger between United and Continental. With concerns of a potential monopoly at one of the US's largest airports, Southwest Airlines has been able to take advantage of available slots largely brought about by pressure from US Department of Justice.

The table below illustrates passenger share by carrier at Newark, which illustrates the dominance of Continental at Newark.

Source IATA BSP data (Airport IS July 2009-July 2010)

With United and Continental competing on just four markets from Newark; Denver, Washington Dulles, Chicago O'Hare and San Francisco there will not be significant scope for reduction of destinations. However, a rationalisation of some frequencies, particularly from the main United and Continental hubs is likely. The merger will allow UA and CO to reduce some regional flying from their main hubs such as Newark and Chicago routing passengers via one hub instead of two or more.

This could free up more slots and opportunities for Southwest in the future. With only JetBlue Airways having a significant low-cost presence at Newark, Southwest may see an opportunity for low-cost development at Newark.

Across the New York system, Southwest has no presence at JFK, whilst from LaGuardia it serves Baltimore and Chicago Midway. However its major presence in the New York system is at the secondary airport of Islip, Long Island. From Islip, Southwest Airlines operates 141 weekly flights to seven destinations and is the dominant carrier there, with only US Airways offering scheduled services. Southwest serves Baltimore, Fort Lauderdale, Las Vegas, Orlando, Chicago Midway, West Palm Beach and Tampa, so its move into one of the two major New York Airports is an interesting strategical decision.

WHY NEWARK FOR SOUTHWEST?

Newark will fit into Southwest's evolving strategy of serving primary airports. Whilst the carrier has successfully built its model upon serving secondary airports such as Chicago Midway, Baltimore and Dallas Love Field it now focuses on attracting more business travellers and in turn the higher yields that are available at a major international airport such as Newark. Whilst Southwest remains a single service operator with an all economy product, it has developed its Frequent Flyer Programme and onboard services with wireless facilities aimed at the corporate traveller.

Entering the Newark market will allow Southwest to compete more effectively for business flyers and their higher yields which in turn will justify serving a market where fees and charges are higher than in markets such as Islip.

This being said there is no doubt that Southwest will look to develop its network quickly from Newark and will join the dots in its network connecting with other Southwest strongholds such as Baltimore, Denver and Philadelphia, whilst on the west coast markets such as Las Vegas, Los Angeles, San Francisco and Phoenix will allow it put pressure on US Airways, American Airlines, United and Continental on the major transcontinental routes.

Southwest could well impact the Newark market in the same way it has done at Philadelphia, where it competes with incumbent carrier, US Airways on 16 destinations since it debuted there in 2004 and has caused a degradation of fares in certain markets, but ultimately has offered passengers a greater selection.