New Study Disputes Southwest Airlines Economic Benefit Claims….

Strong Competition Has Led to Low Fares at DFW Airport

FORT WORTH, Texas, Oct. 18 /PRNewswire-FirstCall/ — New research by Bijan Vasigh, a professor at Embry-Riddle Aeronautical University (ERAU), calls into question the validity of a previous study distributed by Southwest Airlines and The Campbell-Hill Aviation Group. Professor Vasigh examined the economic premise of the Campbell-Hill study and found significant economic modeling errors that call into question the validity of the entire study. Chief among Campbell Hill’s errors are:

1) Assuming there are currently no low-cost carriers operating at DFW
International Airport;

2) Relying upon pricing and market-stimulation assumptions that are more
than a decade old; and

3) Ignoring the industry’s fare readjustment in January 2005.

“The failure to account for the fact that DFW already has low-cost competition and ignoring such an important re-adjustment of fares as occurred in January is reason enough to dismiss the entire study,” said Bijan Vasigh, professor in ERAU’s Business College and the study leader. “With five low- cost carriers currently providing service and another scheduled to start in 2006, flight-length-adjusted fares at DFW Airport are competitive with other major airports across the country.”

In fact, the consumer benefits claimed in the flawed study would be realized more quickly and directly by Southwest moving its operations immediately to DFW Airport, according to Vasigh. “With 96 percent of the traffic, Southwest enjoys the kind of monopoly pricing power at Dallas Love Field that no other carrier in the nation has at a major airport. That’s good for Southwest and its shareholders. But that doesn’t mean it’s good for consumers.”

The Campbell-Hill study also failed to account for the industry-wide fare restructuring that occurred in January 2005. “Even in markets with no substantial low-cost carrier service, the Campbell-Hill report gives no credit to the fact that air fares were restructured earlier this year in all DFW domestic markets,” said Darryl Jenkins, one of the world’s foremost authorities on aviation and author of several books on the industry. “This significantly reduced the average fare paid by DFW passengers, particularly for close-to-departure demand. As such, many of the claims regarding passenger stimulation and the resulting economic impact are grossly exaggerated, if not blatantly false, including the projected $118.7 million economic impact in the Los Angeles market alone.”

“If there is an example of monopoly pricing power in the Dallas area, it is not American, but Southwest that exercises it,” said Vasigh. “When examining yield, the price per mile earned by an airline, Southwest earns its highest system yield at Love Field, 20.9 cents per mile, while American and other carriers serving DFW earn 14.46 cents per mile.”

“Under these circumstances, it is disingenuous for Southwest to claim that American Airlines has a monopoly at DFW Airport, where it maintains a 64 percent market share, while Southwest holds on to a 96 percent market share at Love Field,” said Jenkins.

Nonetheless, the use of average-fare comparisons in the Campbell-Hill study is even more suspect since American has first class and business class service and Southwest does not. This drives up the calculation of the average fare, and therefore cannot be compared fairly with Southwest’s coach-only product. Since passenger mix affects the statistical average, Professor Vasigh concentrated on actual fares charged consumers in each market and found the highest fares at DFW Airport are charged by US Airways, not by American.

According to Professor Vasigh, if there is one area in the United States that is not economically hindered by airlines, it’s the North Texas region. It is served by a major international carrier with connections all over the world and has the presence of well-managed low-cost carriers already in the market.

Professor Vasigh’s review of Campbell-Hill’s study was done at the request of American Airlines.

Related Articles