As holiday travelers begin queuing up in airport security lines, the infrequent fliers among them may be taking their last flight on a Northwest Airlines jet.
Or, for the foreseeable future, flying at fares this expensive.
A year from now, passengers at the Minneapolis-St. Paul International Airport will notice new airlines, new prices and new choices. Northwest’s Red Tail will have been painted Delta blue, and Southwest Airlines will be flying passengers to Chicago for a fraction of the current fares.
With today’s economic turmoil and a volatile industry dependent on the price of oil, it’s impossible to predict how things will actually turn out, but changes already in the works have passengers, travel agents and airline analysts wondering how air travel from the Twin Cities will be different in the years ahead.
The ‘Southwest Effect’
For starters, Southwest will begin flying eight daily nonstop flights from MSP’s Humphrey Terminal to Chicago Midway beginning in March. The lowest fares will start at $138 round-trip, a whopping discount compared with the $600 or so Northwest has been charging for the route.
The fares were announced at a festive press conference earlier this month at the Mall of America, where officials spoke with the enthusiasm of carnival barkers on a stage backed by columns of gold, red and blue balloons.
“The time is right for new competition and new choice to enter our market,” said Jack Lanners, chairman of the Metropolitan Airports Commission. For airports seeking to boost competition, attracting Southwest Airlines is like hitting the “mother lode,” Lanners said.
The Dallas-based airline is renowned for its customer service, but it also brings a “mystique,” says local airline expert Terry Trippler. Some call it the “Southwest Effect”: When Southwest comes to town, prices go down and traffic goes up.
Northwest already has said it will match Southwest’s fares to Chicago. But Trippler doesn’t expect the price adjustments to stop there. Northwest will be forced to consider price cuts on possibly dozens of direct routes to destinations easily reached from Chicago Midway.
But Southwest’s success here isn’t solely dependent on converting Northwest passengers. Jeff Hamiel, the airport’s director, says Southwest tends to draw in new customers who would have ordinarily driven to their destination: “People who would normally not fly, do fly.”
That’s why attracting Southwest to the Twin Cities was such a priority. The airports commission, and Hamiel personally, courted the airline for more than 15 years before it got a “yes.” Hamiel visited the airline in Dallas at least annually for most of those years.
“They’ve looked at us for years, and now made the decision this is the right time,” Hamiel said.
Hamiel said Southwest is in strong financial shape relative to other airlines because of successful fuel hedging. Sun Country has proven low-cost carriers can work in the Twin Cities, he said. And:
“I think the merger of Northwest and Delta has left them with a sense of opportunity.”
Defending the fortress
Northwest Airlines has had a strong grip on the Twin Cities air travel market ever since it merged with Republic Airlines in the mid-1980s. Before that, each of those airlines controlled roughly 40 percent of the market. Now, Northwest owns about 80 percent.
That dominating presence has, by most accounts, helped to raise both the quality of service and the price of fares at MSP. We enjoy one of the highest non-stop-flights-per-capita ratio in the country, but we pay a premium, too. Some argue the premium pays for that service, while others point to a lack of competition for keeping prices high.
Northwest hasn’t been afraid to flex its muscle when challenged by airlines offering lower fares. The carrier has a history of matching competitors’ lower fares, and then piling on frequent-flier and other incentives to keep its customers from supporting other airlines.
“It’s a contest to see who can outlast the other,” Hamiel said. “A combination of economics, competition, deregulation – all that has resulted in a lot of players coming and going.” The list includes: Reno, People’s Express, ValueJet, TWA, PanAm, Western, and Eastern.
Northwest is now a subsidiary of the world’s largest airline, which raises questions about whether defending turf at MSP will remain as high a priority as it’s been historically.
“This is going to be a Delta battle, not a Northwest battle,” says Trippler. “We don’t know how Delta will fight back. We know how Northwest would have. It will be interesting.”
Delta has a mixed track record on its response to competitors at its Atlanta hub. In the past it was not as aggressive as Northwest, but more recently it’s relied on price wars to stave off competitors.
Dale Eastlund, an airlines analyst with Carlson Wagonlit Travel, said the management philosophy won’t be clear until more is known about how Northwest executives will be integrated into Delta’s management.
Whatever the strategy, Delta is expected to be the dominant force at MSP for decades. Delta has said it doesn’t plan to eliminate any hubs, and it has a strong economic incentive to keep what Northwest has going at MSP: It’s always been Northwest’s most profitable hub, Trippler says. When the airlines were negotiating a merger, MSP frequently came up as one of Northwest’s major assets.
“Northwest or Delta will still be the dominant airline in this town for the rest of my life,” says Trippler. “Delta will dominate as long as they want to dominate.”
How will Southwest fare?
At the same time, “Southwest will grow as long as they want to grow,” Trippler says.
Besides adding new destinations, Southwest might also expand its influence by forming a code-sharing agreement with another low-fare carrier, such as Sun Country, Trippler said. The airlines would make a good pair, he said, and both have expressed interest in code-sharing deals.
It’s tricky to predict how quickly airlines add routes, Trippler said. Southwest, in general, tends to build up new routes more quickly than other airlines, as it did in Denver and Philadelphia. A couple of stops that might make logical additions are Kansas City and Salt Lake City, he said.
“You can almost be certain that within a month all of their flights to Midway will be full,” he says. Then, the question becomes where and when Southwest will decide to fly to next.
Why, when so many other challengers failed to find their footing at MSP, would Southwest thrive?
“One thing Southwest brings that some of the other low-cost carriers lacked is that strong brand equity,” says Eastlund.
Southwest Airlines is the nation’s largest domestic carrier. It has a lower-cost structure than any of its competitors. It also has a proven track-record of entering new markets, which it only does after an extremely thorough market analysis, Hamiel says.
“Southwest has a long history of prudent success,” he says, “so if anyone can do it, they can.”
Dan Haugen is a freelance writer and community journalist who covers business and other topics for MinnPost.com. He can be reached at dhaugen [at] minnpost [dot] com.