In its bid to tap international markets, Southwest (NYSE:LUV) reached another milestone as it got approval for the initiation of international operations from the Houston Hobby Airport. The airline is willing to fully fund the project that would require investments worth $100 million. These initiatives are a part of the carrier’s long term vision of starting international services to Mexico, the Caribbean and cities in Central and South America from this airport by 2015.
The carrier’s acquisition of AirTran for $3.4 billion was also targeted to facilitate its entry into international markets through Mexico and the Caribbean. While the deal is subject to approvals from Houston City Council, United Continental (NYSE:UAL) is lobbying hard against this deal to overcome competitive pressures in this region. United has dominant presence in Houston through the George Bush Intercontinental (IAH) Airport from where it provides international services.
The project proposes an initiation of international services through five new gates at the Hobby Airport. If the project materializes, Southwest could start international operations by leveraging AirTran’s presence in Mexico and Caribbean markets from this airport. It would also reap long term benefits through preferential scheduling rights and rent-free access to four of the five new gates. Banking on its existing low cost structure, the carrier has the potential to ride ‘The Southwest Effect’ and gain substantially on the international front.
Southwest has established itself as a leading domestic market player in terms of ASMs (Available Seat Miles) and the execution of this project would play a vital role in gaining international market share. International service will add another product line to the carrier and further boost the stock’s valuation.
United Continental, on the other hand, will face the heat as its market share of international services through IAH will get eaten up by the low cost giant. United is expecting around 5,000 job cuts if this deal goes through. However, its arguments against this proposal don’t seem to create much impact as Southwest proposes 10,000 new jobs and annual passenger growth of 1.5 million. Considering the benefits and growth prospects that this project carries for Houston, it is highly likely that the deal would come through.