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Travel Trends: The effect of Southwest Airlines' cheap fares on competitor fares

The last time you wanted to book a trip somewhere in the U.S., what airline did you think of first? If you're like thousands of U.S. air passengers, you checked to see if Southwest Airlines flew in and out of the city you wanted to visit. Since its inception almost forty years ago in 1971, Southwest has been providing passengers all over the country with low-cost travel options.

Southwest uses several strategies to lower its costs so they can, in turn, can offer cheap fares. Among them:
  1. They mostly fly in and out of secondary markets, which are less costly.
  2. They only use one type of plane, the Boeing 737, which keeps maintenance costs down.
  3. They only fly domestically.
  4. Southwest Airlines is a "low frills" airline, dispensing with extras like meals or in-flight movies.
The formula seems to be working. The average Southwest Airlines ticket can often be a fraction of the price of a ticket on another major airline. Further, many passengers will drive out of their way to a secondary market in order to be able to take a Southwest flight. As a result of this success, other airlines have been pressured to lower their prices in order to compete. The average ticket price in markets with Southwest in them has gone down in the last ten years, while many markets without Southwest have gone up.

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