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Travel Trends: The effect of Southwest Airlines' cheap fares on competitor fares
Southwest uses several strategies to lower its costs so they can, in turn, can offer cheap fares. Among them:
- They mostly fly in and out of secondary markets, which are less costly.
- They only use one type of plane, the Boeing 737, which keeps maintenance costs down.
- They only fly domestically.
- Southwest Airlines is a "low frills" airline, dispensing with extras like meals or in-flight movies.
For a simple analysis, we looked at four cities in which Southwest had started service in the last ten years, and then compared ticket prices ten years later.
Buffalo started Southwest service in 2000. By 2009, Buffalo's average fare had plunged by 19%. Southwest entered the market in both Dulles and Denver in 2006. From 2006 to 2009, the average ticket price at Dulles went down 1%; in Denver, the average ticket price dropped 13%. In 2007, service to San Francisco started; between 2007 and 2009, the average airfare went down 21%. None of these data account for inflation either.
By contrast, we also looked at the airfares from 2000-2009 in markets that did not have Southwest. Although the gains were modest by some means, in a world where most airfares have gone down in the last ten years, they were still significant. Not only does Savannah, Georgia, not have Southwest, but Southwest does not operate anywhere in the entire state of Georgia. Therefore, it was no surprise to see a 6% increase in fares over the last ten years. Alabama and Tennessee are both under served by Southwest, as well, which is reflected by Memphis increasing by 3% and Huntsville increasing by 9%. Finally, Reagan (Washington DC), which competes with Dulles, went up by 2%.
All in all, it's cheaper overall to fly now than it was in 2000; but for the markets served by Southwest, it is cheaper still. The advent of Southwest and other low-cost airlines such as Air Tran have lowered costs all over the nation. Many people have reported that flying Southwest is a more pleasant experience in other ways as well; the facts bear this out. Southwest has the lowest customer complaints in the industry (as of 2009).
So what are you waiting for? Grab your sun tan lotion and your swimsuit -- your next vacation in the California sun just got a lot cheaper.
Data Sources: Travel Trends.