Wednesday, April 6, 2016

Should Southwest Airlines Bid on LaGuardia Airport Slots?



Should Southwest Airlines Bid on LaGuardia Airport Slots?

I am aware that Southwest currently serves LaGuardia Airport, however I have no knowledge of whether Southwest’s LaGuardia flights have benefited Southwest overall or have turned out to be an albatross that they wish they had not acquired, and have only continued in the LaGuardia market because the exiting costs are too high.

If one applies the principles of “The Coherence Premium”, should Southwest Airlines have decided in 2008 to enter the LaGuardia market? 

LaGuardia’s notorious heavy air traffic congestion and frequent flight delays would be more extensive than Southwest’s previous new service at a high congestion airport (Philadelphia), and will be another step away from Southwest’s successful business model (distinctive capabilities had been low fares, frequent flights, on-time arrivals, and point-to-point service, and from less congested cities offering better accessibility to business travelers).

Applying the coherence test, the answer should be not to start service at LaGuardia, for LaGuardia’s traffic congestion is at the extreme opposite of Southwest’s historical model for selecting cities to serve. It would not be aligned with Southwest’s “way to play”, “capabilities system”, and “service fit”.

Considering CEO Gary Kelly’s new philosophy of emphasizing “the power of the network. It allows us to go into a market with just a few flights to benefit the network”, it remains to be seen whether the LaGuardia slots would benefit Southwest’s network traffic, especially since it was suggested that Southwest could isolate the new flights (delay issues) between one or two cities and LaGuardia.

It is more likely that Southwest would struggle with on time performance at LaGuardia and post poor LaGuardia performance resembling every other airline at LaGuardia. Would the lower Southwest on time performance at LaGuardia dismay the veteran Southwest customer and possibly spillover to a lower overall perception of Southwest?  Given the higher operating costs at LaGuardia, it is difficult to imagine any other financial incentives to enter that market, unless Southwest customers at LaGuardia translate to new Southwest customers in other cities.  It also seems unlikely that Southwest could maintain a low fare position at LaGuardia (another non-coherent strategy). 

One other consideration for acquiring the slots, is whether the purchase of the LaGuardia slots would simply be a good investment without considering the cost of operating the new flights.  Perhaps new technology to reduce delays would be developed and implemented in the future at LaGuardia, and the slots at that point would have greater value to Southwest to keep and operate or sell to other airlines.

In the end, or at least at the moment Southwest continues to go in another direction to become more like the other major airlines (Fortune.com, September 23, 2015, “Southwest Bets Big on Business Travelers”).

 


                                                                        

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