Entry Patterns in the Southwest Airlines Route System

Abstract

We estimate a model of city-pair entry for Southwest Airlines using data from 1990 to 2000. In addition to quantifying the market characteristics which have influenced Southwest’s entry decisions, we find evidence that Southwest’s entry strategies have changed significantly throughout the decade. Based on our model’s estimates, we provide an estimate of the foregone fare savings resulting from the Wright and Shelby Amendments. Finally, we identify those markets that are the most likely for future non-stop entry and suggest which network carriers are most vulnerable to future Southwest expansion. Copyright Kluwer Academic Publishers 2004Airlines, low cost carrier, market entry,

Entry and Exit in a Liberalised Market

“…Both results support the notion that, in the U.S. postderegulation, hub-and-spoke networks were valued not only for the cost savings they permitted, but also for the market power they o¤ered (Borenstein, 1989). 4 Here, the analysis will focus on the entries and exits by airlines in European routes departing from the ten main UK airports for the period January 1997 to June 2004, that is, immediately after the industry was fully liberalised. Our study is in the line of Berry (1992) and Boguslaski et al (2004) but departs from previous contributions in a number of aspects.…”

“…Interestingly, in a combined study of entry and exit, Joskow et al (1994) show that entry and exit have opposite sign e¤ect on average price levels but not on output. A particular type of actual and potential competitors that has become increasingly important in recent years is that of the low cost carriers (henceforth, LCC), the most notable examples being Southwest Airline in the U.S. and Ryan Air and Easyjet in Europe (Boguslaski et al, 2004;Piga and Filippi, 2002). These have been posing a very signi…cant competitive pressure on traditional carriers, both in the roles of potential and actual competitors.…”

“…4 Here, the analysis will focus on the entries and exits by airlines in European routes departing from the ten main UK airports for the period January 1997 to June 2004, that is, immediately after the industry was fully liberalised. Our study is in the line of Berry (1992) and Boguslaski et al (2004) but departs from previous contributions in a number of aspects. First, we study the characteristics that make an entry (or an exit) arise in one route but not in another substitute route, using a conditional logit model.…”

The impact of hub hierarchy and market competition on airfare pricing in US hub-to-hub markets

“…For LCCs with sound PP networks, it is possible to leverage their networks by providing connecting services between existing airports within their networks to enjoy economies of airport costs (such as Southwest's network strategy) (Boguslaski et al, 2004). This strategy is, however, markedly different from the FSCs' HS network, whereby network economies are realized by adding more new destinations to their hubs and profitability heavily depends on connecting traffic.…”

The Value of Bluer Skies - How Much Do Consumers Gain from Entry by JetBlue Airways in Long-Haul U.S. Airline Markets?

“…With respect to market entry, existing research can broadly be subdivided into two strands: the 'determinants of entry' literature and the 'effects of entry' literature. While the former set of papers investigates the key drivers of airline's decisions to enter particular routes by either estimating structural models (see, e.g., Berry (1992), Ciliberto andTamer (2009), Dunn (2008)) or -following an reduced form approach -estimating the likelihood of entry as a function of firm and market characteristics (see, e.g., Boguslaski et al (2004), Lederman and Januszewski (2003), Sinclair (1995)), the 'effects of entry' literature can be subdivided further into studies of the general effects of entry and studies with a particular focus on the incumbent's reactions to entry (see, e.g., Daraban and Fournier (2008), Goolsbee and Syverson (2008), Lin et al (2002)). Given the focus of this paper on the general effects of entry, the remainder of this section will concentrate on a review of papers belonging to this sub-set of literature.…”