Southwest Effect
There is a story on USA Today’s website lamenting the disappearance of the Southwest Effect and using Atlanta and Southwest’s entrance into that market as an example of it not working anymore.
The Southwest Effect is the effect Southwest has had on poorly served markets when it has entered the market. In short, Southwest stimulated a great deal of passenger traffic every time it entered a new city and this was cited all the way back in 1993.
The problem is that the airline industry is a very different beast today. In 1993, Southwest was a one of a kind airline. By 2000, we saw airlines such as JetBlue with enhanced service products start to take-off. Others, such as Airtran, were performing their own Southwest maneuevers in various markets.
Starting in 2008, industry capacity started to contract and has largely done so for over 4 years now. Legacy airlines have gone through bankrtupcy and now often enjoy labor rates that are on par with most low cost carrier labor rates. In some cases, they’re lower.
No one has quite managed to replicate Southwest’s productivity though. Despite exceptionally high labor rates, the airline still manages to be one of the most productive in the industry and continues to keep its customers exceptionally happy.
It’s true that Southwest has evolved. It is no longer seeking to be the absolute lowest fare on the block. They’ve discovered that they can grow as the airline who offers the best value on the block. A strategy that I agree with because high value is chased by people with good incomes.
In the case of Atlanta, I think it’s silly to expect Southwest to stimulate traffic. That has been the fortress hub of Airtran for more than a decade and if there was any traffic to be stimulated by low fares, Airtran already did so. There is a reason why Southwest bought Airtran and it wasn’t because it wanted Boeing 717s.
Southwest is now adopting new strategies where I do think we’ll see traffic stimulated. Those routes are to Central and South America as well as the Caribbean. There is a reason why United (Continental) panicked over Southwest’s desire to build an international terminal in Houston: There is both traffic to be “stolen” as well as generated with that operation in an area where legacy airlines have been enjoying exceptionally high (and profitable) fares for quite some time.
In fact, if Southwest figures out this international flying and is able to manage it with its productivity needs, I think we’ll see Southwest stimulate traffic to Mexico, Central America and Canada. All markets that could use some good old fashioned competition from someone like Southwest.
Will they do so on Hawaii routes? No. In fact, I actually believe that Southwest would be better off with a code share parter on Hawaii routes than operating such routes by themselves. There is a great deal of capacity on those routes as well as a great deal of competition. Why not simply strike a deal with Hawaiian Airlines and move on to other areas that yield more traffic, more profit and offer more potential? Hawaii might have been a good idea in 2005, it isn’t today.
At the end of the day, there is something important to remember about Southwest: They aren’t in business to create cool things like the “Southwest Effect”, they are in business to earn a respectable profit. Anything that comes from meeting that goal is secondary and its presence or absence isn’t indicative of the airline. What should be lamented, if it ever does happen, is Southwest no longer providing a profit after 40 years. So far, it not only hasn’t happened but there is no evidence of a trend towards it happening.
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