Abstract
Bennett and Craun (1993) identified the effects on individual airline markets when Southwest Airlines enters them. They find that Southwest Airlines forces incumbent competitors to adjust prices downward, causing there to be a subsequent increase in overall demand that occurs not only in the airport that Southwest enters, but in the broader region in which airline service is offered. In this paper, we argue that the strategic implications of the Southwest Effect on airline markets are actually broader than indicated by Bennett and Craun. By using airline operating and financial data compiled by the Bureau of Transportation Statistics (BTS), we documented changes in competitive factors for the top ten airlines. We find that the presence of Southwest and other low cost carriers (LCC) forces incumbent competition to adjust factors (such as workers, capital, etc.) that affect productivity needed to support a sustainable low cost advantage.