Southwest Airlines takes off at O’Hare on Sunday. Here’s what that could mean for fares.

Lauren Zumbach, Chicago Tribune
·7 min read

The number of flights scheduled to pass through O’Hare International Airport this month has plunged to less than half last year’s level as the COVID-19 pandemic continues to devastate air travel.

Sunday, there will nonetheless be a new carrier at the airport: Southwest Airlines, seizing an opportunity to move in as other airlines scaled back.

“We want to bring the ‘Southwest effect’ to O’Hare,” said Dave Harvey, vice president of Southwest Business.

Southwest has been credited with spurring a drop in fares when it enters a market, and early data suggest fares are down on the handful of routes where Southwest will compete with O’Hare’s biggest carriers. But that effect may be more muted than usual — O’Hare already has a handful of budget carriers, and Southwest isn’t new to the city. It has a strong presence at Midway Airport, which will remain its primary hub.

The Dallas-based airline will operate 16 flights per day to Dallas, Baltimore, Denver, Phoenix and Nashville out of three gates at Terminal 5, which typically handles international flights.

Southwest’s small initial presence at O’Hare means it is “not in the same league” as the airport’s biggest carriers, United Airlines and American Airlines, but it will give travelers more options and could win some over from rivals on the routes where they compete, said John Grant, senior analyst with aviation data firm OAG.

What remains to be seen is whether Southwest can attract new passengers at O’Hare as travel recovers, or whether it will simply shift loyal customers who find the larger airport 19 miles north of Midway more convenient.

The steep decline in travel has pushed many fares down during the pandemic. On Southwest, the cheapest fares to Dallas on the first Friday in April are listed as low as $49 at both Midway and O’Hare, compared with $43 at American Airlines and $85 at United Airlines out of O’Hare.

On routes Southwest is offering at O’Hare, prices for nonstop round-trip flights on United, American and Delta departing after Southwest’s entry but before April fell 11%, on average, between Jan. 23 and Feb. 11, said Adit Damodaran, economist at travel research firm Hopper.

Prices for flights from Chicago to Baltimore saw the steepest decline, while prices on flights to Phoenix and Nashville rose.

While low-cost carriers like Southwest usually have a bigger impact on legacy carriers’ fares, Southwest already has an established presence in Chicago and the pandemic has pushed domestic airfares to “historic lows,” Damodaran said.

Southwest will likely offer bargain fares initially, but “will like any airline want to secure the highest fares possible over time,” Grant said.

Still, Southwest has a broad network that makes it more attractive to a wider pool of customers than leisure-focused budget airlines, said Robert Mann, a New York-based airline industry consultant.

It could have an impact on fares as travel recovers, especially when it comes to last-minute tickets, Mann said. Southwest also doesn’t charge some common fees, like checked bag fees and flight change fees, though United, American and Delta Air Lines have also eliminated change fees on flights departing the U.S. since the pandemic began, except for basic economy passengers.

“It has to be taken seriously, especially at this time when demand is hard to find at the right prices and airlines are having to pivot their networks to find what revenue they can,” Mann said.

Chicago-based United, which has hubs in both Chicago and Houston, where Southwest also plans to add service from a second airport, said it looks to forward to “competing vigorously with other airlines at both airports, as we do at airports across our leading global network.”

American, which also considers O’Hare an important hub, said it is “committed to our team and customers in Chicago.”

“We’re constantly evaluating our network and we look forward to continuing to deliver for our customers who choose to fly with us to, through and from Chicago by providing access to the places they value most,” the airline said in a statement.

Southwest has served Midway since 1985, but never O’Hare.

The airline decided to scale down the number of daily flights from the 20 initially announced for O’Hare because the pandemic continues to keep many travelers grounded, but bookings have been “in line with expectations,” Harvey said.

Southwest will add three Saturday flights from O’Hare to Orlando in March. All are destinations the airline already serves at Midway, and Southwest said fares would be similar at both airports.

About 80 Southwest employees will work at O’Hare out of more than 5,000 workers total in Chicago, the airline said. All of the employees at O’Hare are existing Southwest employees, including about half who transferred from Midway and half who transferred from other cities where the airline operates.

Southwest may add additional flights at O’Hare as demand for travel grows, but Midway will continue to be the airline’s “anchor” in Chicago, Harvey said. In June, for each Southwest flight planned at O’Hare, there are 15 at Midway, where the airline accounts for 90.5% of all scheduled passenger flights, according to data from travel analytics company Cirium.

Even with a relatively small number of flights, adding service at O’Hare gives travelers choices and could help Southwest grow as travel recovers, industry analysts said.

Southwest hasn’t run out of space at Midway but has limited room to grow without affecting customers’ experience, spokesman Dan Landson said in an email.

Historically Southwest primarily focused on smaller airports like Midway, but the airline now flies to several cities where it serves multiple airports, including Baltimore and the Washington, D.C. area and the San Francisco area. Of the dozen new destinations the airline announced in recent months, Southwest already served airports near Miami International Airport, O’Hare and George Bush Intercontinental Airport in Houston, where Southwest will begin flying in April.

While a pandemic that devastated global air travel may seem like an unusual time to add service to a second airport in a single city, “some of these were once in a lifetime opportunities, especially O’Hare,” said Mann.

“If you assume life returns to normal at some point, it’s a foothold on which they can build,” he said.

Southwest wasn’t immune to the pain the pandemic caused the airline industry: it lost $3.1 billion in 2020, its first annual loss since 1972. But the airline entered the pandemic in a stronger financial position than rivals, making it easier for it to seize an opportunity to expand, said Colin Scarola, vice president of equity research at investment research firm CFRA.

The airline will still have a tiny presence compared with O’Hare’s dominant carriers. United Airlines and American Airlines account for about 47% and 39% of passenger flights scheduled in June, respectively, according to Cirium data. Southwest has less than 2% of scheduled flights, slightly fewer than Spirit Airlines and a little more than Frontier Airlines or JetBlue Airways.

There’s at least one group that may be more willing to fly Southwest at O’Hare, according to Harvey: business travelers north of the city.

“There are quite a few corporations that say, ‘If you don’t serve our primary airport, you’re never going to get your fair share of our business,” he said.

Southwest has long had a reputation as a leisure-focused airline but says it had a “healthy mix” of business travelers before the pandemic nearly brought corporate travel to a halt. Small and medium businesses have been more willing to travel during the pandemic than large corporations, especially when it comes to sales operations, which can depend on in-person contact, but recovery has been “very slow going,” Harvey said.

The Global Business Travel Association expects to see some recovery in the second half of this year as vaccines become more widely available, but a full return to pre-pandemic corporate travel could take until 2025, said Dave Hilfman, the association’s interim executive director.

The industry has been through downturns before when people predicted business travel would never be the same, but it has always bounced back, Hilfman said. When it does, those travelers will be looking for flexibility and options.

“Anytime a carrier adds service, you get a range of flight schedules that might be available for choosing, more inventory and more price competition,” he said. “That’s what Southwest’s entrance provides, more options and more choices.”

lzumbach@chicagotribune.com