Charisse Jones, USA TODAY
USA TODAY - You might want to start calling it the "JetBlue effect."
A study released Thursday has found that Southwest's fabled ability to lower fares by its mere presence in a market has diminished over the past six years, weakening the argument that the carrier can play a key role in keeping prices in check despite a wave of mergers sweeping the airline industry.
JetBlue, meanwhile, and ultra-low-cost carriers such as Allegiant and Spirit have shown a greater impact on lowering the average price of a ticket where they fly.
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"Past mergers, United-Continental, Delta-Northwest, pointed to Southwest being the great price disciplinarian,'' said William Swelbar, research engineer with MIT's International Center for Air Transportation, who co-wrote the new airfare study. "It's not the disciplinarian that it was yesterday.''
The "Southwest effect" has been mentioned most recently in regard to the pending merger of US Airways and American Airlines. That combination, which would create the largest airline in the world, is currently on hold after the Department of Justice and attorneys general for six states and the District of Columbia filed a lawsuit to block it, claiming the union would lead to a loss of service and higher fares and fees for the traveling public.
Southwest's entry into a market would often lead to fares coming down across the board, as other carriers dropped their prices to better compete with the low-cost giant. Some industry watchers have said that this leveling effect could help keep fares from skyrocketing despite a shrinking number of airlines left in the wake of Northwest and Delta merging in 2008, United and Continental linking up in 2010, and even Southwest's own merger with AirTran in 2011.
But the MIT study found that, when adjusted for inflation, the average one-way fare on Southwest has risen roughly 25% since 2007. And while Southwest does continue to have a cooling effect on ticket prices, its impact is significantly less than it was just a few years ago.
In 2007, Southwest's presence at an airport was linked to a dip of roughly $36 in the average one-way fare. In 2012, the decline had shrunk to $17.
"They had to pass through the cost of fuel to the consumer,'' Swelbar says, noting that fuel prices rose 57% from 2007 to 2012. "As a result, Southwest has been forced to increase its fares just like the rest of the industry.''
Meanwhile, in 2012, JetBlue's presence at an airport was associated with a dip of roughly $32 in the average one-way fare. Allegiant was linked to a decrease of roughly $29 for the average one-way ticket, and Spirit Airlines was associated with a dip of roughly $22.
"What this paper is suggesting is Southwest at least is not having the same price leadership it used to have,'' says Michael Wittman, Swelbar's co-author. "But the other (low-cost carriers) may have impact in preserving competition at some airports, even with a merger.''
JetBlue spokeswoman Tamara Young says that the study "confirms that our growth into new markets lowers average fares more than others. We provide value as well as great service when we enter a new market.''
Southwest spokeswoman Michelle Agnew says that the airline has raised fares this year, often because "of the fluctuating costs in our industry, fuel being a large contributing factor.''
But she says the increases tend to be lower than other airlines, and are usually based on the length of the flight. And ultimately, she says, Southwest's decision to not charge some of the extra fees tacked on by most of its peers makes a Southwest fight the cheaper option.
"I think you'll see when you compare prices by airline on various markets, Southwest is still the clear low-fare leader,'' Agnew says, "especially when you add in the fact that Southwest Airlines does not charge for bags or administer change fees.''
Swelbar agreed that ultra-low-cost carriers such as Spirit rely heavily on extra fees, raising the overall cost of the trip.
And JetBlue doesn't have the same footprint as Southwest, which carries more domestic passengers than any other U.S. airline. So JetBlue's impact on prices is felt much more specifically, on an airport-by-airport, route-by-route basis.
"We have to appreciate the scale of the Southwest network relative to JetBlue, and it is significantly bigger,'' Swelbar said. "Therefore, JetBlue can't have the type of effect that Southwest had just five years ago.''
The report also found that midsize hubs, rather than smaller communities are seeing the biggest increases in fares. From 2007 through 2012, the average one-way fare rose 11.9% at midsize hubs, like Oakland and Providence, R.I. That's compared with an 8.7% increase at larger airports, and a 5.7% rise in smaller communities.
The disparity is primarily the result of midsize communities being caught in the middle, Swelbar and Wittman said. Airlines have shifted flights to larger airports like San Francisco and Boston, and low-cost carriers such as Southwest, which have dominated smaller hubs, have boosted their prices.
"Airlines are able to control their costs better by consolidating their service at one airport,'' Swelbar says. "So there's a pronounced trend that airports are consolidating their service around one or two airports in a metro area vs. three or four as they have in the past.''