The Southwest Effect

The Southwest Effect

The Southwest Effect is the increase in airline travel originating from a community after service to and from that community is inaugurated by Southwest Airlines or another airline that improves service or lowers cost.

Lower fares increase demand

The term was coined in 1993 by the U.S. Department of Transportation to describe the considerable boost in air travel that invariably resulted from Southwest's entry into new markets, or by another airline's similar activity ( [http://www.erau.edu/research/BA590/chapters/ch8.htm Ritter] ) . Southwest offered dramatically lower air fares than established airlines that usually enjoyed a near-monopoly in the communities.

Competing airlines match Southwest fares

Airlines competing with Southwest Airlines resisted Southwest entering a new market, due in part by the necessity to lower fares in that market (and reduce profitability) to remain competitive.

ales rise for all airlines in the market

The established airlines also feared losing passengers to Southwest Airlines. Instead, it was found that the entry of Southwest and the corresponding drop in air fares stimulated business in the communities and increased demand for air transportation.

Example cities

Perhaps the clearest instance of the Southwest Effect was in Providence, Rhode Island when Southwest began serving the community. Air travel increased from 100,000 passengers travelling per year to 800,000 passengers travelling per year (Yeh, 2004, page 153).

References

*Bennett, Randall D. and James M. Craun. [http://www.google.com/search?q=cache:4BUFbLMPXIIJ:ostpxweb.dot.gov/aviation/X-50%2520Role_files/Southwest%2520Effect.DOC+bennett+%22The+Airline+Deregulation+Evolution+Continues:+the+Southwest+Effect%22&hl=en&gl=us&ct=clnk&cd=1 "The Airline Deregulation Evolution Continues: The Southwest Effect"] . "Office of Aviation Analysis, U.S. Department of Transportation." May 1993
*Freiberg, Kevin and Jackie Freiberg. "Nuts! Southwest Airlines' Crazy Recipe for Business and Personal Success". Austin, Texas: Bard Books, 1996.
*Rickenbacker, Edward V. "Rickenbacker: An Autobiography". Prentice-Hall, 1967.
*Ritter, Justin. [http://www.erau.edu/research/BA590/chapters/ch8.htm "The Southwest Effect"] . "Southwest Airlines: An In-Depth Review." Daryl Jenkins, Embry-Ridle Aeronautical University Graduate Seminar BA-590.
*Skertic, Mark. [http://www.chicagotribune.com/business/chi-0607060068jul06,1,1766875.story?coll=chi-business-hed "Price of flying takes skyward turn again"] . "Chicago Tribune". July 6, 2006.
*Strickland, Amanda. [http://www.bizjournals.com/triangle/stories/2000/08/07/story1.html Fares dive at RDU: 'Southwest effect' also boosts traffic] . "Triangle Business Journal". 2000-08-04.
*cite book |author=Yeh, Raymond T. |title=The Art of Business: In the Footsteps of Giants" |publisher=Zero Time Publishing Co |isbn=0-9754277-0-9


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