Ever since airport officials in Houston proposed to start international service from the city’s Hobby airport the debate has been quite strong as to the value of adding such service. I weighed in on the topic a few weeks back and figured it was worth circling back to take a look at some of the things which have transpired in the intervening weeks.
There have been editorials on both sides of the issue and both United Airlines (strongly opposed) and Southwest (strongly in favor) are putting their best face forward, claiming benefits to the local community assuming their version is pursued. I’ve now reviewed both reports and it is reasonable to claim that both are horribly biased and filled with unreasonable and unlikely expectations, drawing conclusions which are almost certain to not come to fruition.
Southwest is suggesting ridiculous economic growth based on fare levels that are simply not going to happen in the current cost structure. At the same time, however, United seems to be ignoring that a decent chunk of the Southwest operation is actually connecting traffic, making it reasonable to push some of that feed onward to international destinations.
United suggests repeatedly that opening up Hobby to international competition may force them to reduce their capacity to the LatAm region, the areas that Southwest is proposing adding service to. This ignores, of course, that Houston is a huge gateway and that they are making money on those routes (continually high yielding according to SEC filings). More importantly, however, the carrier has no other gateways from which to reasonably serve those markets. Maybe a couple of them can be handled from Los Angeles, but not many and certainly not without similar competition issues.
The United report also offers up dramatic charts like this one:
Apparently allowing international service at Hobby will see dozens of other routes canceled, reduced or never started. Most entertaining about the graphic is that they seem to be "naming names" of cities they would expect to be affected, but doing so with destinations that don’t make much sense. Or maybe it is all symbolic and the IAH-SJC route really isn’t doomed.
The editorial in the Chronicle has some similarly absurd presumptions in it, like the claim that all the affected customers are going to be locals, not connecting passengers (Southwest has a lot of connections at Hobby) and that Southwest showing up is going to cut prices so much as to create demand in the market. The days of $30/bbl are over; Southwest simply cannot afford to actually cut fares that much and have the routes be profitable.
Finally, it is worth noting that the construction being proposed for Hobby is about more than just the FIS facilities. There are upgrades to the check-in lobby and security facilities also on the drawing board. These are improvements that the airport needs badly and they seem to have become tied up with the FIS issue for a variety of reasons, some good and some bad.
At the end of the day, however, more competition is nearly always better for customers. Even the cases where United has suggested that capacity has fallen in similar historical situations (and in these they do not necessarily consider all the factors in play) the results for consumers are nearly all better. Even where the total number of seats in the market may have decreased, the decreases in the new competition markets have been lower than the national average. In other words, the new competition kept things better than average in those markets, even with decreases in frequencies.
In the game of "Lies, damn lies and statistics" both sides are playing hard and doing their best to present the numbers in a way that supports their case. I still say it eventually gets approved and that the benefits to the city of Houston will be real, though not nearly as great as Southwest suggests they can gain.
A bit more coverage on the topic can be seen at the following:
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