The ‘Southwest effect’ reaches Denver

Image: southwest route launch
A new route is greeted in the traditional manner. Arrival of first Southwest aircraft on 2 Jan 2006 with Southwest VIPs on board. Photo: airliners.net

Southwest’s announcement in October 2005 that it would be returning to the Denver market after an absence of 20 years was further evidence of its strategy of targeting larger airports if the right conditions could be met. Denver International Airport (DEN), the fifth busiest in the US with 47.3 million passengers in 2006, is best known as a major hub for United and for the dramatic roofline of the main terminal, built for the much-delayed airport when it finally replaced Stapleton in 1995.

Southwest launches routes in January 2006

Southwest’s first routes to its major bases in Chicago Midway, Las Vegas and Phoenix began in early 2006. By the end of August the network had grown from three to 10 destinations. Many of the routes have also seen frequency increases since they started.

Airport Name Airport Code Start date of route Initial frequency Current frequency
Chicago Midway MDW 03 Jan 06 4/day 7/day
Las Vegas LAS 03 Jan 06 5/day 7/day
Phoenix PHX 03 Jan 06 4/day 6/day
Baltimore/Washington BWI 04 Mar 06 1/day 3/day
Salt Lake City SLC 04 Mar 06 4/day 4/day
Oakland OAK 17 Jun 06 5/day 5/day
Houston HOU 17 Jul 06 1/day 2/day
Kansas City MCI 04 Aug 06 4/day 4/day
Nashville BNA 04 Aug 06 1/day 1/day
Orlando MCO 04 Aug 06 1/day 2/day
Tampa TPA 04 May 07 1/day 1/day

Tampa was added in May of this year and recently a further five destinations have been revealed to start during the fourth quarter. These are Albuquerque, Amarillo, Austin, Oklahoma and Seattle. Since Southwest operations began, departing passenger numbers have increased from under 40,000 passengers per month to over 100,000.

Map: Routes from Denver

The ‘Southwest effect’ is alive and well

Southwest’s ability to stimulate markets with lower fares has been observed in many markets over the years. Figures compiled by the US DoT show that this effect is still occurring. In the third quarter of 2006 four of Southwest’s routes from Denver saw average fares fall by over 30%. In all of these markets total traffic grew by over 50%.

Avge FareQ3 2005 Avge FareQ3 2006 change PassengersQ3 2005 PassengersQ3 2006 change
Denver -Salt Lake City $160 $89 -44.4% 70,580 126,770 79.6%
Denver – Phoenix $158 $90 -43.3% 158,730 248,970 56.9%
Denver -Kansas City $171 $110 -36.0% 70,670 112,830 59.7%
Denver – Las Vegas $139 $94 -32.0% 143,960 239,660 66.5%
Source: US Consumer Air Fare report (Q3 2006)

In the fourth quarter of 2006 a similar effect was observed on two of the routes.

Avge Fare Q4 2005 Avge Fare Q4 2006 change Passengers Q4 2005 Passengers Q4 2006 change
Denver – Salt Lake City $154 $91 -41.1% 80,780 124,990 54.7%
Denver – Kansas City $161 $96 -39.4% 69,440 109,430 57.6%
Source: US Consumer Air Fare report (Q4 2006)

Driving down fares in Denver

A look at the average fare from Denver in all short-haul markets (<750 miles) for the last eight quarters, clearly shows the impact that Southwest has had at the airport.

Period Average Fare Fare Premium % Number of Short-Haul Markets
1Q 2005 $157 15 26
2Q 2005 $155 8 26
3Q 2005 $155 10 25
4Q 2005 $151 1 34
1Q 2006 $136 -12 33
2Q 2006 $137 -16 36
3Q 2006 $132 -13 35
4Q 2006 $126 -12 36
Source: US Consumer Air Fare reports 2005, 2006

Prior to Southwest’s arrival short-haul fares were around 8% above the national average when adjusted for sector length. Since the start of 2006, fares have been around 13% below the average.

Southwest already number three in Denver

Image: Denver Jeppesen terminal
Denver’s dramatic 1.5m sq ft Jeppesen terminal.

At the end of 2005, United Airlines and its associates (so-called LCC Ted and United Express) had 57% of the Denver market followed by Frontier with 18%. These two airlines alone flew three-quarters of all passengers in and out of Denver.

The latest figures published by Denver Airport (for May 2007) show that Southwest is already the third biggest airline at the airport with just under 5% of all domestic passengers. Frontier is still the biggest LCC with 20.9% of passengers, followed by Ted with 8.3%. AirTran and JetBlue combined have around 1% of the market.


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