This airline has been proven to lower average airfares by 10 to 15 percent. Here's why — and where it will happen next.
Since Southwest entered the domestic airspace in 1971, it’s had a tangible — and completely quantifiable — impact on competitors, according to the Los Angeles Times. The U.S. Department of Transportation dubbed this force the “Southwest Effect.”
And a recent study from the University of Virginia’s Darden School of Business showed that there’s still something about Southwest’s presence that compels other airlines in the market to lower fares.
“Virtually every market entered by Southwest experienced a significant reduction in average market fares,” wrote the study’s authors, Alan R. Beckenstein and Brian M. Campbell.
“The Southwest Effect is alive and well [today]. We find no evidence that the Southwest Effect has been eroded or overtaken in significance or magnitude by other airlines,” Beckenstein and Campbell concluded.
Between 2012 and 2015, other carriers slashed ticket prices by 10 to 15 percent, on average, when Southwest began servicing those same markets. Nonstop routes prompted a particularly strong decline in prices from other airlines.
Even low fuel prices and other budget airlines haven’t had such a significant impact, the study noted.
This summer, Southwest set its sights on a number of new destinations. The airline announced 19 new routes, beginning in March 2018 — all nonstop from San Diego, San Jose, and Sacramento.
And as soon as November 2017, travelers can enjoy new international flights (and more favorable prices) on Southwest to Costa Rica, Mexico, and the Dominican Republic from cities in Florida and Tennessee.
Southwest also suggested to shareholders in May that, with the arrival of a new fleet of Boeing 737 Max aircraft, Hawaii could be the airline’s next market. On October 1, Southwest received its first Boeing 737 Max 8 — meaning cheap flights to Hawaii on Southwest (and the airline’s competitors) could be available quite soon.
If historical patterns remain, flight prices to Hawaii could plummet by 15 percent — and that could mean nonstop flights to Hawaii for under $300 round-trip.
In that same meeting, Southwest’s CEO Gary Kelly indicated international flights to Canada on Southwest could also be on the horizon.
It’s hard to determine what, precisely, Southwest’s secret sauce is. But according to researchers, it’s the airline’s winning combination of low ticket prices, frequent service, a single (familiar) aircraft, and a “fun and friendly” approach to air travel.
But it probably doesn’t hurt that Southwest is now the only domestic carrier that allows travelers two complimentary checked bags — in addition to a carry-on and personal item with every ticket. With that comes serious value that can make a ticket much more appealing to budget-conscious fliers.
The airline also wins loyal travelers with a flexible cancelation policy.
To see the Southwest Effect take, well, effect, watch flight prices on the airline’s new routes (like San Diego to Puerto Vallarta in March). Airlines already servicing this route should quickly respond by lowering their ticket prices.