A new report concludes that 46 years after it began flying, Southwest Airlines Co. (LUV) still has a significant impact every time it enters a new market: Fares decline and passenger traffic climbs.
"The Southwest effect is alive and well," says the report, compiled by Alan Beckenstein, a professor at Darden Business School at University of Virginia, and Brian Campbell, founder of consulting firm Campbell-Hill Aviation Group.
"A few industry writers have questioned whether the Southwest effect still exists today, or has it been overtaken by the fares/traffic effect created by other low cost carriers" and by Southwest's higher operating costs, the report said.
However, it said, "we find no evidence that the Southwest effect has been eroded or overtaken in significance or magnitude by other airlines."
Rather, the introduction of non-stop Southwest service generally results in a 15% fare reduction and a traffic increase between 28% and 30%, the study said. That occurs even at airports where Southwest had already provided connecting service through one of its focus cities before it added non-stop.
On average, one-way fares are $45 lower when Southwest serves a market non-stop. If Southwest provides connecting service in a market, the average one-way fare decline is $17. Southwest produces $9.1 billion annually in domestic consumer fare savings, the study says.
In ten sample markets that Southwest entered between 2012 and 2015, the report found that the average fare declined between 8% (Chicago Midway-Pensacola) and 45% (Nashville-Pensacola.), while the number of passengers increased between 13% (Chicago-Pensacola) and 543% (Nashville-Pensacola.)
Other big fare declines: 32% in St. Louis-Grand Rapids and 30% in both Chicago-Wichita and Chicago-Memphis. Other big traffic gains: 464% in Las Vegas-Flint, Mich. and 98% in St. Louis-Grand Rapids.
In 2013, Southwest began flying to Charlotte, the second biggest hub for American Airlines Group Inc. In response, the average Charlotte-Dallas one-way fare fell 14% to $219, while Charlotte-Houston fell 18% to $237 and Charlotte-Midway fell 15% to $188.
Meanwhile, traffic rose 38% in the Dallas market, 36% in the Houston market and 15% in the Midway market.
One thing that has changed in recent years is that nearly all of Southwest's new routes have involved destinations outside the U.S.
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