The Southwest Effect

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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.

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[edit] 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 (Ritter) . Southwest offered dramatically lower air fares than established airlines that usually enjoyed a near-monopoly in the communities.

[edit] 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.

[edit] Sales 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.

[edit] 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).

[edit] Previous events

The Southwest Effect is not limited to Southwest Airlines, and Southwest was not the first airline to affect air travel in this way. Eastern Air Lines also increased demand for air travel in Texas, when competing with Braniff in the middle twentieth century (Rickenbacker, 1967).

[edit] References