Competition versus Predation in Aviation Markets

Chapter 8Most Low-Cost Airlines Fail(ed): Why Did Southwest Airlines Prosper?

Andreas Knorr and Andreas Arndt

Introduction

Southwest Airlines (SWA) was established in 1967 in Dallas, Texas, but unable to enter revenue service before June 14, 1971 due to a protracted legal battle with its incumbent competitors. Since then it has not only grown into the fourth largest airline in the USA, in terms of revenue passengers, but also became fourth largest worldwide by 2002.

While most other start-ups on the deregulated US market failed to survive even their first few years in the business, SWA's revolutionary formula (i.e. low-costs, low-fare, no-frills, high-frequency, short-haul, point-to-point-service instead of the traditional high-cost, high-fare, ...