‘Southwest Effect’ still a fact of life

Southwest Airlines still has power to lower its competitors’ fares
The average cost of air tickets in 56 markets fell 15% after Southwest Airlines entered the market, a new study finds, while demand on these routes increased 28%. The study shows that the Southwest Effect phenomenon is still alive and well.
The Dallas-based carrier – now the third-busiest airline in the US – still has the power to lower the fares of its competitors, claims the study by the University of Virginia’s Darden School of Business.
The term the Southwest Effect goes back to the 1990s when Southwest was a low-cost upstart in the industry. At the time, a federal study found that its fares were forcing its competitors to slash their own prices wherever it entered the market.
It still has that power. The new study looked at 109 daily nonstop markets Southwest Airlines entered from 2012 to 2015. The average fares for all carriers fell by at least 15% in 56 of those markets after Southwest entered, and at least 10% in 74 markets. Only 12 saw an average fare increase.
“It’s such a powerful and simple force,” one of the study’s author says. “It’s unbelievable.”
Los Angeles Times


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