The Southwest Effect is the increase in

airline An airline is a company that provides air transport services for traveling passengers and freight. Airlines use aircraft to supply these services and may form partnerships or alliances with other airlines for codeshare agreements, in wh ...

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.

Original description

The

U.S. Department of Transportation The United States Department of Transportation (USDOT or DOT) is one of the executive departments of the U.S. federal government. It is headed by the secretary of transportation, who reports directly to the President of the United States and ...

coined the term in 1993, 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. The Southwest Effect was said to have three elements: * The new-entrant airline ''increased

supply Supply may refer to: *The amount of a resource that is available **Supply (economics), the amount of a product which is available to customers **Materiel, the goods and equipment for a military unit to fulfill its mission *Supply, as in confidenc ...

'' and ''offered lower prices''. Southwest offered dramatically lower air fares than established

s that usually enjoyed a near-

monopoly A monopoly (from Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situation where a speci ...

in the communities. * Incumbent ''airlines lowered their own fares''. Established airlines competing with Southwest Airlines sought to avoid Southwest's entering their markets, and feared losing passengers and having to offer lower prices. Upon Southwest's entry, incumbent carriers lowered their own fares in that

market Market is a term used to describe concepts such as: *Market (economics), system in which parties engage in transactions according to supply and demand *Market economy *Marketplace, a physical marketplace or public market Geography *Märket, an ...

(and thereby reduced their

profitability In economics, profit is the difference between the revenue that an economic entity has received from its outputs and the total cost of its inputs. It is equal to total revenue minus total cost, including both explicit and implicit costs. It i ...

), to remain

competitive Competition is a rivalry where two or more parties strive for a common goal which cannot be shared: where one's gain is the other's loss (an example of which is a zero-sum game). Competition can arise between entities such as organisms, indivi ...

. * ''Sales rise for all airlines'' in the market. For the communities affected, Southwest's entry and the corresponding drop in air fares stimulated business and increased

demand In economics, demand is the quantity of a good that consumers are willing and able to purchase at various prices during a given time. The relationship between price and quantity demand is also called the demand curve. Demand for a specific item ...

for air transportation. This, in turn, increased the revenues of all airlines offering transportation to the community, and sometimes resulted in a net profit increase.

Other carriers with similar effects: The JetBlue Effect

In recent years, some new airlines have had a greater "Southwest Effect" than Southwest itself. An MIT study released in August 2013 found newer, smaller airlines were having a greater impact on lowering the average price of a ticket where they fly. According to an MIT International Center for Air Transportation analysis of ticket statistics, between 2007 and 2012, Southwest's ability to lower fares had weakened from $36 per one-way fare to only $17 per one-way fare. At the same time,

JetBlue JetBlue Airways Corporation (stylized as jetBlue) is a major American low cost airline, and the seventh largest airline in North America by passengers carried. The airline is headquartered in the Long Island City neighborhood of the New York C ...

, Allegiant, and

Spirit Airlines Spirit Airlines Inc. (stylized as spirit) is a major ultra-low-cost U.S. carrier headquartered in Miramar, Florida, in the Miami metropolitan area. Spirit operates scheduled flights throughout the United States, the Caribbean and Latin Americ ...

were associated with dips of $32, $29, and $22, respectively, in markets that they entered. However, other airlines' lower fares don't account for the ancillary products that are a significant component of their business. In August 2013, ''

USA Today ''USA Today'' (stylized in all uppercase) is an American daily middle-market newspaper and news broadcasting company. Founded by Al Neuharth on September 15, 1982, the newspaper operates from Gannett's corporate headquarters in Tysons, Virgi ...

'', in noting the competitive effect on prices continued to be seen, but JetBlue's impact on prices was now largest, suggested, "You might want to start calling it the ''JetBlue effect.''" The article also draws attention to JetBlue's much smaller footprint in overall domestic passenger traffic, making any claims about a widespread effect much more tenuous.

Original description

Other carriers with similar effects: The JetBlue Effect

References

Further reading