Southwest back draft? Airline's arrival has analysts mulling 'Southwest Effect'.

• Author: Lewis, David
• Position: Southwest Airlines Co., United Air Lines Inc.

It's fairly safe to say Tucker Hart Adams is the best-known economist in Colorado. She serves as regional chief economist to U.S. Bank; she also is a former adjunct professor at the University of Colorado, the University of Denver and at Moscow State University. Today she is president of her own Colorado Springs company, the Adams Group Inc., and of American Russian Collaborative Enterprises LLC (ARCHES), through which she has consulted to entities from the Russian Bankers Association to the Khlebnikovsky Machine Building-Ship Repair Works. Here in the United States, Adams is also a noted airline and transportation consultant.

Yet when it comes to booking flights out of Denver International Airport, Tucker Hart Adams, the eminent economist, sometimes does the same thing most of us do: She gets on the Internet to look for a low price.

She did just that recently when she was planning a trip to St. Petersburg with her granddaughter, Alex, who lives in Seattle. "Interestingly," Adams said, "my granddaughter is flying in from Seattle tomorrow to go to Russia, so I went to Southwest to look about getting a ticket because we are flying on (frequent-flyer) miles from Denver (to Russia), but I had to buy her ticket to Denver.

"I looked at Southwest because it was my granddaughter and not for me," she said. "I know that Southwest doesn't assign seats in advance and you have to get on and get a number: then the 'ones' go in first and then the 'twos' and 'threes.'

"I'm at a point in my life where I don't have to fly like that.

"On the other hand, a 15-year-old kid, it's fine for her."

And yet Adams was put off to find that a ticket for Alex on Southwest Airlines was $100 or $150 more expensive than one on United Airlines.

"So she's flying United," said Colorado's most widely known economist.

"It was substantially more expensive, like $400 on Southwest and $270 on United. I have no idea what was going on there."

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Randall D. Bennett, while a deputy director of the U.S. Department of Transportation, 13 years ago was the lead author of an agency paper that identified "The Southwest Effect." "The Southwest Effect" is a predictive economic theory that holds that average air fares will drop significantly where Southwest enters a new market while the number of airline passengers served in that market dramatically increases. It has proven correct over the years, even as Bennett, himself, has retired from DOT.

Its most recent demonstration has been at Denver International Airport.

But there have been other Southwest effects showing up at DIA as well, and Bennett, for one, says those other effects are just as well worth watching in 2006 as he found the original Southwest Effect to be worth watching in 1993.

For example, has Southwest's relatively new executive management begun tinkering with the company's time-honored formula for success: high productivity, lots of flights and low, low, prices? Are expansions of Southwest service to cities like Denver going to have a blow-back effect on Southwest pricing? Bennett's theory predicts increased air traffic in cities where Southwest is a new entrant; will the airline's return to Denver after a 19-year absence force the city to hurry up plans to expand the $5 billion airport here?

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Bennett, who has not talked much publicly about the Southwest Effect since his retirement, told ColoradoBiz that Tucker Hart Adams' experience with Southwest and other recent reports hint that Southwest CEO Gary Kelly's new management at the Dallas-based airline may be more focused on pricing rather than cost cutting.

"When Herb Kelleher was a man running Southwest, their focus was just almost totally on keeping costs down and keeping prices down as low as you can because if you keep prices down, you carry more people," said Bennett from his home in Maryland. "I heard the Southwest CEO, Gary Kelly, talk not that long ago. He never said the word 'cost' once. He mentioned 'pricing power' a number of times, and now we see them going that route. That concerns me."

Southwest Airlines' officials say Bennett's concern is misplaced. They say rising fuel costs have provoked price increases in selected markets including Denver. And they say some of the airline's long-held hedged contracts on fuel purchases, which had kept its fuel...