the “southwest effect” is alive and well case studies july 2015

The “Southwest Effect” is Alive and WellCase StudiesJuly 2015

Southwest Effect SummarySouthwest Effect is alive and applicable in different types of markets

• The Southwest Effect can be seen in different market examples:– Houston, TX: Established, longtime Southwest city with new nonstop markets

– Charleston, SC: Small city with low service levels and high fares

– Memphis, TN: Medium-sized city traditionally dominated by one airline

– Philadelphia, PA: Large city dominated by one airline

• The Southwest Effect is good for all Southwest stakeholders:– More people get to fly to their favorite destinations at lower fares.

– More traffic means more visitors that help stimulate local economies.

– More traffic means more enplanements, which means more airport revenues.

– Southwest welcomes more Customers and revenue.

Houston, TXEstablished, longtime Southwest city with new nonstop markets

• While Southwest has served Houston for over 40 years, recent new nonstop Southwest markets continue to stimulate traffic and lower fares in the Houston area.

• In 82% of the 11 Houston markets started by Southwest since 20121, the average industry fare fell after Southwest entry, stimulating traffic.

• On the aggregate, the fare in these 11 markets fell by an average of 8% after entry, growing traffic 24%.

1. New Southwest markets started since 2012 do not include service that converted from AirTran to Southwest (e.g., ATL-HOU).2. “Before” reflects the four quarters ended prior to the beginning of Southwest service. “After” reflects the four quarters ended after the beginning of Southwest service. “Current”

reflects the most recent year of available DOT data (year-ended December 31, 2014).3. “Passengers” are origin and destination passengers per day each way, to/from Houston Hobby (HOU) and Bush (IAH) combined, for each period in question.4. Data is based on nonstop flights.5. Fares represent average purchased fare.

Before2 After2 After vs Before % Change

Current2 Current vs Before % Change

Service Begins Passengers3 Fare Passengers3 Fare Passengers Fare Passengers3 Fare Passengers Fare

Boston, MA 6/2/2013 424 $253 610 $185 44% -27% 663 $177 56% -30%

Charlotte, NC 4/14/2013 198 $263 264 $219 33% -17% 287 $206 45% -22%

Indianapolis, IN 11/4/2012 166 $226 219 $188 32% -17% 247 $176 49% -22%

Kansas City, MO 4/22/2012 272 $165 265 $194 -3% 18% 319 $166 17% 1%

Memphis, TN 11/3/2013 93 $182 163 $166 75% -9% 163 $166 75% -9%

New York, NY (LGA) 6/2/2013 740 $243 882 $228 19% -6% 941 $224 27% -8%

Orange County, CA 11/4/2012 232 $229 308 $222 33% -3% 304 $225 31% -2%

Pensacola, FL 11/3/2013 45 $229 80 $174 78% -24% 80 $174 78% -24%

Pittsburgh, PA 4/14/2013 291 $245 311 $258 7% 5% 324 $251 11% 2%

Raleigh-Durham, NC 4/22/2012 188 $207 208 $200 11% -3% 224 $192 19% -7%

Washington, D.C. (DCA) 8/4/2013 466 $232 562 $224 21% -3% 578 $218 24% -6%

Market Entry Avg 3,115 $231 3,872 $212 24% -8% 4,130 $204 33% -12%Source: DOT DB1B data

Charleston, SCLow service levels, high fares

• Southwest stimulates traffic not only in large airports with service from multiple carriers, but also smaller, underserved airports.

• In the first year of Charleston service, Southwest was able to facilitate traffic growth of an average of 147% by lowering average fares by 27% in the four nonstop markets it served.

• After approximately three years of service, the traffic average has grown by 174%, and average fares remain 25% lower.

Before1 After1 After vs Before % Change Current1 Current vs Before

% Change Service Begins Passengers2 Fare Passengers2 Fare Passengers Fare Passengers2 Fare Passengers Fare

Baltimore, MD 3/13/2011 49 $182 192 $126 295% -31% 204 $118 320% -35%

Chicago, IL3 3/13/2011 102 $188 206 $156 102% -17% 232 $162 127% -14%

Houston, TX4 3/13/2011 60 $203 92 $177 54% -13% 100 $183 67% -10%

Nashville, TN 3/13/2011 20 $231 79 $109 294% -53% 96 $121 380% -48%

Market Entry Avg 230 $194 569 $143 147% -27% 631 $145 174% -25%

Source: DOT DB1B data

1. “Before” reflects the four quarters ended prior to the beginning of Southwest service. “After” reflects the four quarters ended after the beginning of Southwest service. “Current” reflects the most recent year of available DOT data (year-ended December 31, 2014).2. “Passengers” are origin and destination passengers per day each way for the period3. Chicago data combines MDW and ORD airports4. Houston data combines HOU and IAH airports5. Data is based on nonstop flights.6. Fares represent average purchased fare.

Memphis, TNMedium-sized city traditionally dominated by one airline

• Memphis traditionally had high fares when it served as a Delta/Northwest hub.

• Southwest entered key business and leisure routes and significantly stimulated the local demand in Memphis.

• Since Southwest service began, average traffic in these markets rose by 52%, while fares have decreased an average of 19%.

1. “Before” reflects the four quarters ended prior to the beginning of Southwest service. “After” reflects the four quarters ended after the beginning of Southwest service. “Current” reflects the most recent year of available DOT data (year-ended December 31, 2014).2. “Passengers” are origin and destination passengers per day each way for the period3. Chicago data combines MDW and ORD airports4. Houston data combines HOU and IAH airports5. Data is based on nonstop flights.6. Fares represent average purchased fare.

Before1 After1 After vs Before % Change

Current1 Current vs Before % Change

Service Begins Passengers2 Fare Passengers2 Fare Passengers Fare Passengers2 Fare Passengers Fare

Baltimore, MD 8/11/2013 87 $144 155 $125 79% -13% 142 $130 64% -10%

Chicago, IL3 8/11/2013 163 $231 255 $166 57% -28% 256 $163 57% -29%

Houston, TX4 11/3/2013 93 $182 163 $166 75% -9% 163 $166 75% -9%

Orlando, FL 8/11/2013 184 $164 241 $133 31% -19% 235 $137 28% -16%

Tampa, FL 11/3/2013 89 $170 122 $140 38% -18% 122 $140 38% -18%

Market Entry Avg 615 $183 937 $147 52% -19% 918 $149 49% -19%


Philadelphia-Pittsburgh: Effect of a Southwest market exitAt times, Southwest has had to make the difficult decision to exit markets, and the reverse of the Southwest Effect can be seen as airlines raise fares.

Philadelphia-Pittsburgh industry trafficOrigin and destination passengers and fares, year-ending values


1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14Before Southwest

ServiceDuring Southwest Service After Southwest

Service

$0

$25

$50

$75

$100

$125

$150

$175

$200

$225

$250

0

70

140

210

280

350

420

490

560

630

700

$214 $212

$77 $74 $71 $78 $84

$91

$119

$212 $224

O&D Fare O&D PDEW

Ave

rag

e F

are

Passen

gers D

aily Each

Way (P

DE

W)

Since Southwest exited the market, average fares rose 88% and traffic fell an average 46%

1. Data is based on nonstop flights.2. Fares represent average purchased fare.

Southwest’s Current Philadelphia MarketsYet, in the Philadelphia markets Southwest still served in 2014, its fare was lower than industry average by 13% and lower than the hub competitor (American/US Airways) by 19%Average fares in Philadelphia to/from current1 Southwest destinationsOrigin and Destination average fares, full year 2014

1. “Current” Philadelphia markets includes any nonstop market Southwest or AirTran was flying in 2014, which is the last year of available DOT data.2. “WN” includes Southwest and AirTran; “AA” includes American and US Airways3. Chicago data combines MDW and ORD airports4. “Market Average” weights AA’s and Industry Average fares by the number of Southwest passengers in each Philadelphia market for a cleaner comparison.5. Data is based on nonstop flights.6. Fares represent average purchased fare.

WN2 AA2 Industry Avg WN vs AA WN vs Industry Avg

Atlanta, GA $131 $193 $182 -32% -28%Chicago, IL3 $175 $204 $195 -14% -10%Denver, CO $190 $210 $208 -10% -9%Fort Lauderdale, FL $124 $163 $151 -24% -17%Fort Myers, FL $131 $175 $166 -25% -21%Las Vegas, NV $156 $204 $175 -24% -11%Nashville, TN $142 $186 $163 -24% -13%Orlando, FL $131 $152 $144 -14% -9%Phoenix, AZ $193 $253 $234 -24% -18%St. Louis, MO $169 $204 $187 -17% -10%Tampa, FL $132 $161 $152 -18% -13%West Palm Beach, FL $127 $174 $163 -27% -22%Market Average4 $148 $183 $171 -19% -13%


the “southwest effect” is alive and well case studies july 2015

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