Hawaiian Airlines shares tumble after Southwest plans 'low fares' between islands

Key Points
  • Southwest last week said it plans to sell tickets to Hawaii this year.
  • The company needs federal approvals to fly long distances over water.
  • The airline is planning to fly from four California airports.
Hawaiian Airlines shares fall after Southwest plans 'low fares' between islands
Hawaiian Airlines shares fall after Southwest plans 'low fares' between islands

Shares of Hawaiian Airlines' parent tumbled Thursday after Southwest Airlines said it plans to offer service from California and fly between the Hawaiian islands.

Southwest last fall said it planned to start serving Hawaii this year. On Thursday it said it plans to fly from Oakland, San Diego, Sacramento and San Jose, California, pending regulatory approvals for it to fly long distances over the Pacific.

Hawaiian Holdings shares lost 6.5 percent to close at $38.25 after Southwest's announcement. Southwest shares ended little changed.

Hawaiian Airlines CEO Peter Ingram said in a statement to CNBC that the airline "is not afraid of competition."

Southwest CEO: Our business is holding up well
Southwest CEO: Our business is holding up well

Southwest's presence tends to stir fears about lower airfares. In what's been dubbed the "Southwest Effect," in markets where the airline has nonstop service its fares are $45 lower than in cities without those routes, a University of Virginia study found.

Last week, Southwest announced it would serve four airports in Hawaii — Honolulu, Lihue Airport, Kona International Airport and Kahului Airport — and on Thursday said it could also offer flights between the islands.

Inter-island flying is "a market that has little competition, if any. We think it's very highly priced," Southwest President Tom Nealon told local news channel Hawaii News Now, adding that the airline plans to offer "low fares."

A round-trip ticket from Honolulu to Kona in mid-May on Hawaiian Airlines starts at about $185, according to the airline's website.

Hawaiian Airlines' CEO Ingram took issue with Nealon's comment about high-priced fares, calling it "curious" because some of Hawaiian's last-minute fares were less than Southwest's on a route of similar length, between Austin and Houston. The markets are vastly different and major Texas cities attract more business travelers.

Southwest isn't the only airline adding service to Hawaii. American Airlines on Wednesday said it plans to offer winter flights from Chicago to Honolulu.

Tourism to Hawaii is booming. The state took in a record 9.4 million visitors last year, up from 8.9 million in 2016, according to the Hawaii Tourism Authority.

Southwest is grappling with a decline in bookings following a midair engine failure on one of its flights last month. A passenger was partially sucked out of a blown-out window after a fan blade broke loose from one of the Boeing 737-700's engines. The passenger died, marking Southwest's first accident-related passenger fatality in its 47 years of flying.