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 quantity demanded
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.
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.
Sales rise for all airlines in the market
The established airlines also feared losing passengers to Southwest Airlines due to the lower fares offered by the airline. For the communities affected, however, Southwest's entry and the corresponding drop in air fares stimulated business and increased demand for air transportation. This in turn increased the profitability of all airlines offering transportation to the community.
- Bennett, Randall D. and James M. Craun. "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. "The Southwest Effect". Southwest Airlines: An In-Depth Review. Daryl Jenkins, Embry-Riddle Aeronautical University Graduate Seminar BA-590.
- Skertic, Mark. "Price of flying takes skyward turn again". Chicago Tribune. July 6, 2006.
- Strickland, Amanda. Fares dive at RDU: 'Southwest effect' also boosts traffic. Triangle Business Journal. 2000-08-04.
- Yeh, Raymond T. The Art of Business: In the Footsteps of Giants. Zero Time Publishing Co. ISBN 0-9754277-0-9.
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