After Southwest Airlines started flying to Denver in January, air fares plummeted on flights from Denver International Airport to Chicago Midway, Las Vegas and Phoenix.
The discount carrier stepped up competition against United Airlines and Frontier Airlines, the No. 1 and No. 2 carriers at DIA. Those airlines matched Southwest’s initial fares, helping to push one-way ticket prices down $23 to $50 each.
The carrier has a name for the drop in fares and increase in passenger traffic after Southwest’s arrival in a city. It’s called the “Southwest effect.”
Statistics from the U.S. Bureau of Transportation Statistics show that average fares for Denver-Chicago Midway flights in the first three months of 2006 fell to $107 one way, down from $130 a year ago.
The average Denver-Las Vegas fare during the first quarter dropped to $93 one way, down from $127 a year earlier.
And the average Denver-Phoenix fare during the first quarter fell to $96 one way from $146.
“Once Southwest comes in with lower fares, it brings the average down a bit,” said Southwest spokeswoman Whitney Eichinger.
The number of passengers on the three routes increased. Other carriers increased capacity to compete with Southwest.
“Bring me low fares, and they will come,” said Bestfares.com publisher Tom Parsons. “It’s going to help your tourism.”
Southwest’s entrance also pushes down Denver fares on routes it doesn’t fly nonstop, according to Parsons.
“Low fares equate to more people traveling,” said DIA spokesman Chuck Cannon. “All of that traffic equals more money for the airport.”
But for competitors – including Denver-based Frontier – the competition and lower fares can lead to financial struggles.
Frontier spokesman Joe Hodas said Frontier is competing well against Southwest, with fuller planes and additional flights on some routes. However, airlines, including Frontier, have in some cases lost market share to Southwest on certain routes.
Since January, Southwest has increased its Denver presence to 24 daily departures and plans to increase to 32 next month, including new routes. It has more than 60 employees in Denver.
Though the fares decreased year-over-year in Denver, airlines nationwide have been moving to increase fares because of higher fuel costs, particularly this summer.
Southwest increased its fare cap this month to $319 and said it will raise fares by $3 or $10 for one-way trips.
Southwest chief executive Gary Kelly told investors this month, “I think that we probably have temporarily narrowed the gap” between Southwest and other carriers by increasing fares recently. “We know from our experience that you can only push fares so far.”
In 2011, United, Ted and United Express are expected to carry more than 14 million enplaned passengers from DIA, according to forecasts from Leigh Fisher Associates in a preliminary DIA bond document. Frontier is expected to carry nearly 5.5 million enplaned passengers from Denver, and Southwest could carry more than 2.3 million, the firm estimates.
Staff writer Kelly Yamanouchi can be reached at 303-820-1488 or kyamanouchi@denverpost.com.
