Talk about your contrarians. Southwest, the airline that wrote the book on low-cost orthodoxy, is again breaking its own rules again. The Gospel according to Herb holds that if you want to keep costs down and fares low, you fly only into secondary airports and avoid big hubs with their inherently higher operating costs and inherently entrenched incumbents. Southwest began breaking this rule two years ago when it went to Philadelphia's big international airport, lured in part by the chance to topple a weakened incumbent, US Airways; early this year it added its second big airport, Denver International, where the low-cost local, Frontier, was busy defending itself from dominant United. In fact, Southwest had served the old Denver airport, Stapleton, but pulled out over high costs there when it was as a United/Continental duopoly.
Now Southwest wants to go into Washington's Dulles, another United-dominated hub and, as importantly, an airport that is just 50 or 60 miles from one of Southwest's fastest growing airports, Baltimore/Washington International Airport ('BWI'). That breaks another of Southwest founder Herb Kelleher's commandments: don't cannibalise yourself by going into more than one airport in the same market. Gary Kelly, Southwest's chief executive, insists that it won't be stealing from itself at BWI because "the two regions, Northern Virginia and Baltimore, are really distinct markets, and highway gridlock between the two cities is a real factor". About half of BWI's passengers come from the Washington metropolitan area and at least 10% come from Virginia, Kelly said.
But why Dulles now, reporters asked Gary. "Well, we just thought that if we were going to enter the Dulles market, now was the time. There is competition. There are carriers out there that are growing rapidly. We can't be complacent." Ah, mysterious Texans. But our friend at Dulles, Leo Schefer, whose Washington Airports Task Force has brought new and increased traffic to the airport for more than 15 years, says that Southwest had to move before someone else entered the market for low-fares travel at Dulles. The late and lamented Independence Air established that the wealthy Northern Virginia suburbs have a real thirst for discount travel, Schefer notes, and both AirTran and jetBlue have Dulles toeholds. Independence's low, or too-low, fares, pushed Dulles to rank as the Washington region's largest airport last year with 27 million passengers, edging out BWI's 19.7 million flyers, about 40% of them Southwest passengers.
At Dulles, United will set a ceiling on fares, and Southwest will operate under that, says consultant Bob Mann, who notes that United now has strong low-fares competition from Southwest at every one of its hub cities, at Chicago (United at O'Hare, Southwest at Midway) to San Francisco, where Southwest competes from Oakland. Kelly did not announce routes for the Dulles service, expected to be launched this fall. Dulles will be the airline's 63rd airport, and Southwest probably will not announce another new city this year, Kelly said, but will nevertheless keep its projected 2006 and 2007 growth rates of about 8% annually.