Denver, A Case Study In How Competition Reduces Air Fares

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This is a golden age for air travel if you are lucky enough to live in Denver.     When I moved here in 1997, Denver’s new airport had recently opened in 1995.   It was said that the grand new facility was conceived for three major airline hubs, built for two, and opened with one.   During the time it took to design and build the airport, Western airlines was absorbed by Delta and it’s Denver hub was closed, and Continental chose to abandon it’s Denver hub at the old Stapleton Airport rather than move to the new field.    When Denver International Airport (DIA) opened in 1995, only United remained as the sole carrier offering service to more than a handful of destinations.   As you can imagine, prices were high.  I once purchased a lasts minute ticket from Denver to Atlanta for $1,600 round trip.   I might have paid less  if I had flown to Sydney.  As I write this, I just searched for a trip from Denver to Atlanta leaving today and returning Thursday.   The price was just over $600.

What Changed?

Frontier Airlines grew a hub in Denver throughout the last decade.   Although they struggled, they offered lower fares to dozens of destinations around the country.   Last year, they emerged from bankruptcy when they were acquired by  Republic, the owner of Midwest.   Earlier this year, the Midwest brand was folded into Frontier.    Four years ago, Southwest Airlines began service to Denver.   Southwest aggressively expanded their Denver service, their fastest ever growth to a new city.   The result is that Denver is now the airport that was originally envisioned, one with three hubs, United, Frontier, and Southwest.

Having three hubs has a fantastic effect on prices out here.   According to the Denver Post, the average airfare from Denver has dropped by a third in the last decade. I don’t think there is much precedent for three airline hubs operating out of a single airport.    Chicago has American, United, and Southwest out of Midway.  Orlando has Southwest, Airtran, and Jetblue.  Even Milwaukee has miniature connecting operations of Southwest, Frontier, and Airtran.   In the last two of those cases, Southwest’s purchase of Airtran will shrink competition back to two major carriers.

Is It Sustainable?

How long can this situation continue.   Let’s face it, Denver is not Chicago and never will be.    On the other hand, few people realize that Atlanta has the busiest airport in the world, so these things are not intuitive.     The fact is that Denver made a huge bet 20 years ago that Denver’s location would be so ideal for connecting operations, that multiple carriers would be willing to compete with each other here.    At first, it seemed like a terrible bet, building what was at the time, the world’s largest airport in the high planes, 15 miles outside of Downtown.    Today, it seems like the bet is paying back handsome dividends  as Denver is one of the top 10 busiest airports in the world and one of the top 5 in the county.    Denver’s airport continues to grow despite the current economic downturn.

What Are The Lessons Here?

To some extent, you could say “If you build it, they will come,” but only if they have nowhere else to go.   Other airports built in major cities in the last forty years have been only moderately successful when they have had to compete with their predecessors, such as Washington Dulles and Dallas-Ft. Worth.    In the case of Atlanta, their enormous new terminal finished in 1980 has also been an overwhelming success.  Like Denver, it has no competition offering commercial service in the metropolitan area.

Another clear lesson is that competition will always benefit consumers.   When airlines merge, woe be it unto travelers who once flew a competitive route that is now dominated by a single carrier.  Keep that in mind next time there is a merger proposed between airlines, and their media people claim that the results will be good for consumers.

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