Is the ‘Southwest Effect’ Driving Down Airfare?

You may have heard of the “Southwest Effect,” a term airline industry experts use to describe how airfares offered by the nation’s major carriers decline when Southwest Airlines competes on certain domestic routes. The Southwest Effect has even applied to foreign routes, however, a new study shows that may no longer be the case.

“Our latest study shows that Southwest Effect did not stick for travelers from the Caribbean, Mexico and Central America to the United States,” said Rick Seaney, chief executive of the travel website FareCompare, in a release issued Tuesday. Although travelers headed to the U.S. initially experienced the Southwest Effect, “those average lowest fares have increased, returning to the levels they were prior to Southwest’s foray into those markets,” the company said.

Methodology

For this study, the FareCompare team analyzed data from the first quarter of 2015 through the second quarter of 2016 from the following origin cities: Belize City, Belize; Cancun, Mexico; Liberia, Costa Rica; Mexico City, Montego Bay, Jamaica; Puerto Vallarta, Mexico; San Jose del Cabo, Mexico; and San Jose, Costa Rica.

From there, the company priced flights from those origin cities to the following U.S. destinations: Atlanta, Boston, Dallas-Ft. Worth, Denver, Houston, New York and Washington, D.C.

The airlines included in the study were Aeromar, Aeromexico, Alaska, Frontier, Interjet, JetBlue, Spirit, Sun Country, Tropic Air and Virgin America. Southwest, which only shares prices on its site, and Delta Air Lines were not included.

Although it is difficult to compare fares against Southwest’s typically lower prices if Southwest is not included in the study, FareCompare said they used other low priced airline carriers as a basis of comparison.

“Southwest’s fares were not part of our analysis because their pricing is only available on its Web site. We analyzed more than 1.7 million of these fares on eight major airlines over an 18-month period after Southwest began service to/from these international destinations and think our analysis accurately reflects the overall impact of Southwest’s entrance on pricing,” said FareCompare spokesman Joel Frey.

“The first analysis compared 72,847 airfare searches the first quarter 2015 with 249,911 airfare searches in the first quarter of 2016 to determine if baseline price changes had occurred,” FareCompare said. “The second analysis compared a total of 1,411,990 airfare searches from January 2015 through June 2016, using the same filters applied to the first analysis.”

Study Findings

The lowest price across markets in the Caribbean, Mexico and Central America was $605 during the first three months of 2015, according to Dr. James C. Stone, lead data scientist at FareCompare, and his team. In the second quarter of 2015, that number declined to $555, due to Spirit Airlines competing in the same markets. JetBlue similarly broadened its reach, adding routes from Liberia, Costa Rica; Montego Bay, Jamaica; and San Jose, Costa Rica.

By the third quarter of 2015, average lowest prices had shrunk to $533, FareCompare said. Major carriers in the U.S. like US Airways and American followed suit. But in the last three months of 2015, something happened. The average lowest prices rose to $572, FareCompare said, while prices on JetBlue, Spirit and Frontier remained relatively low. By the second quarter of 2016, the average lowest price had bounced back to $603, just two dollars away from where it was in the first quarter of 2015.

Arguably, Southwest isn’t the only low-cost carrier swaying the competition’s prices, Seaney concluded. Yet while competition matters, major carriers don’t always follow their lead, as this study suggests. It is also important to note that the the first study by FareCompare, released April 25, performed a year-over-year comparison and notes that fares may also have dropped in 2016 due to fears about the Zika virus.

Saving on Travel 

If you’re planning a trip to the Caribbean or anyplace else, be sure to do your wallet a solid and look for ways to cut costs. Travel rewards cards are one smart way to lower expenses on things like airfare and hotels, while hotel rewards cards can help you earn points toward free stays. Just remember, these cards typically require good credit in order to qualify, so you’ll want to know where you stand before you apply. You can view your two free credit scores on Credit.com.

Image: pick-uppath

The post Is the ‘Southwest Effect’ Driving Down Airfare? appeared first on Credit.com.