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Southwest Effect makes its way into international markets

Apr 25, 2016

DALLAS, TX - FareCompare released today its first findings of a comprehensive analysis of the Southwest Effect in new international routes, discovering significant savings for US consumers. The company compared prices on new routes that the airline launched in the fall of 2015 for non-stop flights between Houston and some of Southwest's new cities in the Caribbean, Central America and Mexico.

"We know that when there is competition, fares drop. And when Southwest or other low-cost carriers enter a market, consumers benefit from falling prices," said Rick Seaney, CEO and co-founder of FareCompare. "Our team leveraged our extensive database of current and historical fares to identify for the first time the scale of the Southwest Effect in international routes."

The Methodology:

FareCompare analyzes more than 17 billion itineraries daily to find the lowest available prices on existing flights. For this project, the team compared available airfare prices from Houston to eight new Southwest Airlines non-stop destinations from Houston - Belize City, Cancun, Liberia, Montego Bay, Mexico City, Puerto Vallarta, San Jose del Cabo and San Jose, Costa Rica. The first analysis compared 70,410 airfare searches of the first quarter 2015 with the first quarter of 2016 searches to determine if baseline price changes had occurred. Prices were based on the average of the lowest detected prices for the advance purchase of between 14 and 34 days before departure, for stays from 4 to 14 days. The second analysis compared a total of 233,704 airfare searches between January 2015 through mid-April 2016, using the same filters applied to the first analysis.

The Findings:

The Southwest Effect appears to extend to international destinations, at least in most cases. Overall, average lowest prices on round-trip flights to these destinations dropped significantly with the exception of fares to San Jose del Cabo, which rose slightly. Price drops for all destinations averaged out to $155 or nearly 25% from year-to-year; when San Jose del Cabo fares are removed from consideration, the drop was slightly above 30%.

However, there are likely other factors at play as well, including other low-cost carriers in the market and the Zika virus scare. The full report is available now from FareCompare.

"I think it is important to note the Southwest Effect is essentially a competition effect but competition has been decimated the past 6 years with mega-mergers; it is good to see what happens when airlines compete," Seaney added.

The research project was lead by Dr. James C. Stone, Ph.D., Lead Data Scientist at FareCompare, supported by Anne McDermott, Editor and the entire analytics and communications team at FareCompare. The team continues to analyze this data to determine how shoppers can get the best deals and will provide updates on the findings in the near future.

Southwest Effect makes its way into international markets

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