William McEachern

English

Research Papers in Economics

By William A. McEachern
Throughout history, distance has deterred eco-
nomic growth.  In medieval Europe and China, for
example, three-quarters of the population never
ventured more than five miles from their birthplace.
But technical progress reduced the cost of transport-
ing people, goods, and ideas, and fueled economic
growth.  Here we dissect what could become a piv-
otal event in Connecticut’s economic development—
the arrival of Southwest Airlines at Bradley. 
First, some background. Prior to the 1978 Airline
Deregulation Act, federal regulations set airfares
and restricted new entry, thereby insulating inter-
state airlines from the rigors of price competition.
In 1971 Southwest Airlines entered as an intrastate
carrier, not subject to federal regulations, flying the
so-called Texas Triangle—Dallas, Houston, and San
Antonio.  So while interstate airlines grew lazy
under federal protection, Southwest honed its com-
petitive skills in the Texas market. 
Once federal deregulation freed airfares and lift-
ed the ban on new entry, Southwest jumped into
prime time.  Deregulation initially stimulated a
wave of entry by new upstarts such as People
Express and New York Air. While most new
entrants eventually either disappeared or merged
with larger airlines, Southwest spread from
Chicago to Los Angeles, carving up the market like
a Thanksgiving turkey by offering an unbeatable
combination of low fares and award-winning ser-
vice. Southwest provided what it called a point-to-
point service strategy, staying away from big air-
ports, where operating costs were higher.  
A Nor’easter
Southwest stormed the Northeast, beginning in
1996 with Green Airport outside of Providence.
Green became the fastest growing airport in the
nation, jumping 88% year-over-year. Manchester
Airport in New Hampshire became the fastest
growing airport in the nation last year after
Southwest’s arrival.  And traffic has more than
doubled since Southwest began service last March
at McArthur-Long Island Airport in Islip. Wherever
Southwest goes, lower fares follow, as the competi-
tion matches price cuts to hold market share.  For
example, average one-way fares between
Providence and Baltimore dropped from $155 to
$60.  Similar reductions occurred in Manchester.
And passenger totals increased sharply. 
Southwest sees Bradley as “an airport that has
room to grow.”  The company expects to attract
customers from northern New Jersey, eastern New
York, Massachusetts, and Vermont.  Bradley, the
second busiest airport in New England, will serve
over six million passengers this year, a double-digit
growth rate from last year (see the accompanying
chart for totals since 1985). 
The nation’s fourth largest airline in terms of
passengers, Southwest flies 52 million passengers a
year to 56 airports in 29 states with about 2,500
flights a day. Eight of Southwest’s 12 nonstop
flights out of Bradley go to Baltimore, two go to
Midway in Chicago, and one each goes to
Nashville and Orlando.  There is also a Saturday
nonstop flight to Las Vegas.  Another 18 cities can
be reached via one stop from Bradley, and 10 more
cities with two stops.  Altogether, Southwest flies
or connects to 33 airports from Bradley.  
Southwest bills itself as the only short-haul, low-
fare, point-to-point carrier in America. The empha-
sis on point-to-point service is a dig at the hub-
and-spoke system used by other major airlines.
Southwest gives the impression that you fly direct-
ly from point A to point C without having to stop
at B along the way.  This is marketing spin.  If
Southwest were to fly out of Bradley as a true
point-to-point carrier, they would not fly to many
points. For example, the demand by Bradley pas-
sengers for trips to, say Jackson, Mississippi, may
not support nonstop service from Bradley.  But by
combining passengers from Southwest’s four
Northeast airports with those from Baltimore itself,
Southwest supports three flights a day from
Bradley to Jackson through Baltimore.  Most of
Southwest’s flights from Bradley, Manchester, and
Providence go to Baltimore, not because Baltimore
is such a popular destination, but because it con-
nects Bradley passengers to the wider Southwest
airport network. 
No Free Lunch—In Fact, No Lunch
Although Southwest claims to be a point-to-point
airline, with no hub airports per se, Baltimore and
Midway serve as hubs for Bradley and other
Southwest feeder airports in the East.  For exam-
ple, of the 18 destinations that are within one stop
from Bradley, all connect through Baltimore and/or
Midway.  Southwest is really a point-to-point-to-
point airline. But even with de facto hubs, some of
Southwest’s routes get stretched out. Southwest’s
way to San Jose from Bradley, for example, stops
twice and takes about 11 hours (American Airlines
gets there in nine hours with just one stop). 
As a low-fare, low-cost carrier, Southwest skips
some services provided by other major carriers—
namely, no first class seats, no pets, no luggage
transfers to other carriers (those connecting to
another airline must recheck bags with that air-
line), no tickets honored from other airlines, no
reserved seats (passengers board on a first-come,
first-served basis), and no meals (peanuts on all
flights; mouse-size portions of cheese and crackers
on longer flights).  
Southwest also cuts costs by promptly turning
planes around, slicing ground time to half the
12 The Connecticut Economy Fall 1999
Southwest Storms 
the Northeast industry average. By saving 20 minutes at each
stop, Southwest saves three hours a day on a plane
flying back and forth from Bradley to Baltimore.
The first-come, first-served seating policy aids the
turnaround by getting passengers on the plane in a
hurry.  Other time shavers include the no-pets and
no-transfers baggage policy.
Southwest leads the industry with electronic
tickets, another money saver, offering them first in
1994. Nearly three quarters of Southwest’s passen-
gers now use them, tops in the industry by far. It
costs about $8 to process a paper ticket versus $1
to process an electronic ticket. And about 15% of
Southwest’s revenue comes from bookings made
over the Internet, another money saver; this is
three times the industry average. 
A Flying Wal-Mart
What Wal-Mart did to retailing, Southwest is
doing to flying.  Low fares, on-time service, and
few customer complaints have made Southwest the
fastest growing airline in the nation. Employees
also like Southwest. In 28 years of operation,
Southwest has yet to lay a worker off or to lose an
hour to a labor dispute, even though it has the
most heavily unionized work force (85%) in the
industry. More than 150,000 people apply each
year for the company’s 3,000 openings
Not surprisingly, investors also like Southwest.
On the day that Bradley service began, Southwest
had a capitalized stock market value of $8.5 bil-
lion, an amount that exceeded the market values of
United Airlines, US Air, and Northwest combined.
Thus, Southwest, with its 26,000 employees, is
worth more than the three other airlines put
together, with their aggregate payroll of 200,000
employees.  
Even travel agents like Southwest, since it’s the
only major airline that continues to pay a 10%
commission. Other major airlines pay 8% but just
announced a cut to 5%.  The only groups that
don’t seem to like Southwest?  Competing airlines
and airline caterers.
Blue Skies for Bradley
The decline in airfares at Bradley will make the
region more attractive as a destination for conven-
tions, tourists, and business people. Cheaper fares
will act like a tax cut for Bradley passengers. Even
if the typical passenger saves only $100 per year in
airfares because of Southwest’s arrival, that total
would exceed $600 million in 2000, and will soon
grow to $1 billion a year as more people fly. 
Southwest’s arrival adds urgency to the planned
$156 million expansion of Bradley, which will
include a new terminal and an additional airport
ramp area. The arrival could also spur develop-
ment of the Griffin line, the proposed light-rail link
from Hartford to Bradley.  Finally, economic devel-
opment around the airport should expand beyond
what is now the primary industry—parking.
Of course, the local benefits of Southwest depend
in part on the airline’s next move. Southwest’s pen-
etration into the Northeast may not yet be com-
plete.  The company plans to add at least two more
U.S. cities in 2000, though it has yet to pick the
cities.  A move into either Albany Airport or
Stewart Airport in Newburgh, New York, would
draw business from Bradley, much like Bradley will
draw from Providence.  On the other hand, a move
to Portland, Maine, would likely boost Bradley by
feeding more passengers into Baltimore, making it a
busier hub with more connections.
One subtle benefit of Southwest’s arrival may be
to give state residents a greater common identity,
particularly in reorienting some Fairfield County
residents away from the New York metropolitan
area and toward the central part of the state.
Southwest is marketing Bradley to Fairfield County
with billboards in Norwalk, Danbury, and
Westchester County.  In The Connecticut Economy’s
household survey, 29% of the Fairfield County resi-
dents who were polled said they would increase
the number of flights they take from Bradley
because of Southwest’s arrival there, a figure that
matches the statewide average (30%).  
Traditionally, Southwest opens with a limited
schedule and grows the business. They started
with 12 flights a day from Providence and now
have 23. They began in Baltimore with eight flights
a day and are now up to 93. Southwest draws in
people who could not otherwise afford to fly or
who simply increase their travel because of cheap-
er fares.  For example, before the arrival of
Southwest’s discount fares, few people would con-
sider a day trip to Washington to visit the
Smithsonian or to watch UConn play Georgetown.
You can fly roundtrip to Washington for as little as
$78—about the price of a good seat at the recent
Knicks-Nets exhibition game at the Hartford Civic
Center.  Discount fares to Orlando also put a week-
end at Disney World within reach of many.  
In short, Southwest’s arrival opens another door
between Connecticut and the rest of the nation.
More generally, Southwest’s entry into the airline
industry has moved air travel into a much stronger
competitive position with other transportation
modes—rail, bus, and auto. 
13 The Connecticut Economy Fall 1999
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After Lull, Passenger Service at Bradley Is on the Rise
Source: Developed by The Connecticut Economy based on totals from the Connecticut Depart-
ment of Transportation. Figures for 1999 are annual estimates based on data through August.

Southwest Storms the Northeast

http://cteconomy.uconn.edu/articles/WM_F1999.pdf

Southwest Storms the Northeast

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Research Papers in Economics