1993 - 1997

Southwest continued to grow -- and make money -- elsewhere around the country. Sacramento was opened June 18, 1991 on Southwest's 20th anniversary. Cleveland and Columbus were added the following year, while 1993 saw the addition of Louisville, San Jose, and Southwest's first city in the Northeast -- Baltimore. At the end of 1993, Southwest bought Morris Air to start operations in the Northwest region.

It was also in 1993 that the U.S. Department of Transportation coined the phrase "Southwest Effect." to describe the characteristics of a low-cost carrier's market entry and the side-effects that come with it.�

There are three distinct features of the "Southwest Effect":

• passenger counts in a particular market rise dramatically;

• the fares in a particular market drop significantly;

• and some distant small town airports without low fare service see a drop in air traffic as folks bypass their own airport and fly out of airports with a significant low-fare presence. In large metro areas, where Southwest serves the secondary airport, the primary airport usually sees an increase in air traffic, too.

In 1994, Southwest added Orange County, CA to its route system and after the merger with Morris Air was complete, Portland, Seattle, Spokane, Boise, Salt Lake City and Tucson were integrated into Southwest's network.

It was a period of phenomenal growth for Southwest and they continued that growth by adding Omaha in 1995 and Tampa, Ft. Lauderdale, Orlando and Providence in 1996. Southwest's strategy seemed to be working, as they remained profitable.

Unfortunately, Love Field passengers didn't enjoy nonstop or connecting service to any of these new cities. Foks had to go out to DFW and most of them paid a premium to fly American.

In the mid 1990's American Airlines developed its own strategies to defend its turf at DFW from low cost carriers. (LCC's)

When new LCC's tried to compete against American on new routes, American typically responded by increasing its capacity and reducing its fares. These new flights and fares were often accompanied by generous frequent flier bonuses - often times triple miles on routes where American had a low fare competitor. Once the LCC was forced out, American promptly raised its fares and usually reduced its service.

These actions were the basis of a lawsuit filed against American Airlines by the U.S. Department of Justice in 1999. The lawsuit noted that:

Beginning in 1993, American became concerned that LCCs would begin to offer service on DFW routes at fares lower than it had been charging and, once established, would expand low-fare competition to more DFW routes. American adopted a strategy to prevent LCCs from developing a toehold at DFW: if an LCC began to offer service on a DFW route, American would add capacity and lower fares on the route until the LCC was driven out of the market.

� American realized its strategy would be costly in the short run but concluded that short-term losses were good "investments" if they forced an LCC out of the DFW markets it was serving, thwarted future expansion by the LCC into additional DFW routes, or deterred entry into DFW routes by other LCCs. As the chairman and CEO of American put it in 1996, "[i]f you are not going to get them [LCCs] out then no point to diminish profit." American pursued its strategy, however, because it knew that once LCCs were driven out of DFW routes, it could reduce its service and raise its fares, thereby recouping its short-term losses through future supracompetitive fares.

American successfully used its strategy against Vanguard Airlines, Sun Jet International, and Western Pacific, each of which attempted to challenge American on certain DFW routes. In each instance, American added flights and reduced fares, losing money as a result. While consumers benefited temporarily from the capacity increases and fare decreases, in each instance, the LCC was driven out of some or all of the DFW routes it was serving; in each instance, American substantially raised fares after the LCC exited; in most instances, American reduced its service after the LCC exited; and in every instance, American solidified its power to charge high fares on DFW routes well into the future.

American's response to the lawsuit was that there was a double standard being applied:

"When a low-fare carrier enters a route, government officials, the press and public applaud them for providing healthy competition. When the established carrier competes on that route by matching those fares or offering more flights, it is denounced as predatory."

American noted that it was forced to close its hubs in Nashville, Raleigh-Durham and San Jose because of low-fare competition and lack of business. Nevertheless, American did not blame its competitors or seek government action against them. Nor did the government see the need to investigate why competitors were able to drive American out of the market:

Illegal or not, American's actions have sent a message to other carriers thinking about entering the Dallas Ft. Worth market. "DFW's our turf. Stay out." That's the real reason low cost carriers account for only 4.5% of DFW's total traffic, while nationwide they account for 30% of all traffic.

Of course, DFW Airport wants you believe it's all Southwest's fault that we don't have more low fare competition. They claim that Southwest wanting to have the Wright Amendment repealed has scared away other carriers. Don't fall for it. The other airlines are not avoiding DFW because of Southwest's opposition to the Wright Amendment. They are avoiding DFW because of American Airlines.