Review of Industrial Organization 25: 317–350, 2004.
© 2004 Kluwer Academic Publishers. Printed in the Netherlands.
Entry Patterns in the Southwest Airlines
, HARUMI ITO
and DARIN LEE
Gordian Group, LLC
Department of Economics, Brown University
LECG, LLC. 350 Massachusetts Avenue, Suite 300, Cambridge, MA 02139, U.S.A.
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 inﬂu-
enced 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 pro-
vide 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
Key words: Airlines, low cost carrier, market entry.
“Our major competition over the last 15 years was other people doing
the same things we do. That’s not the case anymore.” – Donald Carty,
Former Chairman and Chief Executive, AMR Corporation.
The growth of low cost carriers generally, and Southwest Airlines in par-
ticular, has arguably been the single most important development in the
domestic airline industry over the past decade.
Numerous studies have
estimated the fare savings attributable to Southwest and other low cost
Author for correspondence: LECG, LLC. 350 Massachusetts Avenue, Suite 300,
Cambridge, MA 02139, U.S.A. Tel: +1-(617)-761-0108; Fax: +1-(617)-621-8018; E-mail:
“American Airlines to Retrench In Bid to Beat Discount Carriers,” The Wall Street
Journal, August 13, 2002.
See, for example, Transportation Research Board which found that “Probably the
most signiﬁcant development in the U.S. airline industry during the past decade has
been the continued expansion of Southwest Airlines and the resurgence of low-fare entry