BEFORE THE 

U.S. DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

___________________________________________

)

Application of )

)

SOUTHWEST AIRLINES CO. )

) 

for an exemption pursuant to 49 U.S.C § 40109 ) Docket No. OST-2014-

to engage in foreign scheduled air transportation ) 

of persons, property and mail between Houston ) 

Hobby International Airport and Cancun, Mexico City, )

Puerto Vallarta, and San Jose del Cabo, Mexico )

)

 (HOU-CUN) )

 (HOU-MEX) )

 (HOU-PVR) )

 (HOU-SJD) )

___________________________________________ )

APPLICATION OF SOUTHWEST AIRLINES CO.

Communications with respect to this document should be sent to:

Ron Ricks Robert W. Kneisley

 Executive Vice President - Associate General Counsel

 Chief Legal & Regulatory Officer Leslie C. Abbott

Mark Shaw Senior Attorney

 Vice President General Counsel & SOUTHWEST AIRLINES CO.

 Corporate Secretary 919 18th Street, N.W., Suite 600

SOUTHWEST AIRLINES CO. Washington, D.C. 20006 

2702 Love Field Drive bob.kneisley@wnco.com

Dallas, TX 75235-1611 (202) 263-6284

December 11, 2014
1

BEFORE THE 

U.S. DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

___________________________________________

)

Application of )

)

SOUTHWEST AIRLINES CO. )

) 

for an exemption pursuant to 49 U.S.C § 40109 ) Docket No. OST-2014-

to engage in foreign scheduled air transportation ) 

of persons, property and mail between Houston ) 

Hobby International Airport and Cancun, Mexico City, )

Puerto Vallarta, and San Jose del Cabo, Mexico )

)

 (HOU-CUN) )

 (HOU-MEX) )

 (HOU-PVR) )

 (HOU-SJD) )

___________________________________________ )

APPLICATION OF SOUTHWEST AIRLINES CO.

Pursuant to 49 U.S.C. § 40109 and Subpart C of the Department’s Rules of

Practice, Southwest Airlines Co. (“Southwest”)

1 hereby applies for an exemption from 

49 U.S.C. § 41101 authorizing Southwest to engage in scheduled foreign air 

transportation of persons, property, and mail between Houston Hobby International 

Airport (HOU) on the one hand and (i) Cancun (CUN), (ii) Mexico City (MEX), (iii) Puerto 

Vallarta (PVR), and (iv) San Jose del Cabo (SJD), Mexico on the other hand. 

Southwest plans to begin selling flights on these four routes in the first quarter of 2015,

and to commence operations with daily service in all four markets with Boeing 737-700 

aircraft configured for 143-seats on or around October 15, 2015. 

 1 Common air carrier names are used herein.
Application of Southwest Airlines Co.

December 11, 2014

2

I. Southwest’s Proposed Service Between Houston and Mexico Will Provide 

New Low-fare Competition and is Clearly in the Public Interest. 

Southwest’s application represents a rare and valuable opportunity to inject new 

competition in U.S. Mexico trans-border airline service. Under the terms of the current 

U.S. - Mexico Air Transport Agreement, three U.S. carriers are authorized to provide 

service between Houston (including both Houston Intercontinental Airport (IAH) and 

Houston Hobby Airport (HOU)) and CUN, PVR, and SJD. Two U.S. carriers are 

authorized to provide service between Houston and MEX. Currently one U.S. carrier

designation is available on both the Houston – CUN and Houston – PVR routes. In the 

Houston – MEX2 market, United Airlines (“United”) holds one of the two allotted U.S. 

designations and ExpressJet (a United partner) holds the other - making this route a 

United monopoly. In the Houston – SJD3 market, United holds one U.S. carrier 

designation and SkyWest (a United partner) holds another. The third designation in this 

market is taken by Spirit Airlines.

4

 Accordingly, no U.S. carrier designations are 

available in either the HOU – MEX or HOU- SJD markets. 

In these markets, service by ExpressJet and SkyWest under the United Express

brand means that two U.S. carrier designations are being used on behalf of one U.S. 

airline. The United Express service is marketed, distributed, priced and otherwise 

entirely controlled by United to complement its mainline service in those markets. 

 2

 United holds certificate authority on the Houston-MEX route. See Orders 1992-5-20 and 2013-4-11 in 

Docket DOT-OST-2005-22228. ExpressJet provides United Express service on the Houston-MEX route 

until January 6, 2015 when the service will be provided by SkyWest. See Notice of Action Taken, issued 

Sept. 3, 2014, in Dockets DOT-OST-2014-0129 and -0130 (hereafter United-ExpressJet/SkyWest 

HOUSTON-MEX NOAT). 3 United and its partner carrier SkyWest hold certificate and exemption authority respectively on the 

Houston-SJD route. See Orders 1992-5-20 and 2013-4-11 in Docket DOT-OST-2005-22228 and Notice 

of Action Taken issued July 29, 2014 in Dockets DOT-OST-2014-0100 and -0101 (hereafter UnitedSkyWest HOUSTON-SJD NOAT). 4 See Notice of Action Taken, issued Sept. 18, 2014, in Docket DOT-OST-2014-0154.
Application of Southwest Airlines Co.

December 11, 2014

3

United and its partner carriers coordinate, rather than compete, with one another, and 

together utilize dual designations to provide consumers with a single carrier option. 

Southwest would be an independent, new entrant carrier on these routes and 

would provide year-round, daily, large-jet service offering consumers low fares, 

competition and new travel options. Given that Southwest is now prepared to enter 

and compete in the Houston – MEX and Houston – SJD markets, there is no 

justification for allowing United and its partner carriers to continue to hold dual 

authorities in these markets that would block that competition. Accordingly, we request 

that the Department: (1) withdraw one of the two authorities currently held by United 

and its partner carriers in both the Houston-MEX and Houston-SJD markets, and (2) 

grant Southwest exemption authority and corresponding designations to serve these 

two markets. Southwest also requests exemption authority and designations in the 

HOU – CUN and HOU- PVR markets. 

II. Allowing One Carrier to Use Two Designations on a Fully Subscribed Route 

and Block New Entrant Competition is Contrary to the Public Interest. 

The Department’s grant of duplicate authorities for both United and its partner 

carriers in the Houston-MEX and Houston-SJD markets took place when those carriers’ 

applications were unopposed, and thus Department’s grant of those authorities did not 

impede any other carriers from entering in those markets. However, the Department 

made clear in granting those applications that the duplicate authorities would be subject 

to reconsideration if another U.S. carrier filed an application to provide competing 

service with its own aircraft on those routes and no designations were available. For 

example, when United and SkyWest filed a joint application on August 14, 2014 to 
Application of Southwest Airlines Co.

December 11, 2014

4

substitute SkyWest for ExpressJet as the United Express carrier in the Houston – MEX 

market, the Department granted that application but stated that: 

should a competing U.S. carrier present a firm proposal to provide 

scheduled Houston-Mexico City service, we would be prepared to 

reconsider whether, in those circumstances, award of the authority 

granted here continues to be in the public interest.5

Now that Southwest is filing this application and is prepared to begin service in these

markets, the continued holding of duplicate authorities by United and its partner carriers 

is clearly no longer in the public interest. 

Southwest is of course aware that the U.S. and Mexican governments recently 

initialed an amended aviation agreement that will include open third and fourth freedom 

rights for passenger airlines once it becomes effective. Southwest applauds this historic 

agreement and appreciates the work of the U.S. Government delegation in achieving 

this result. However, the new agreement is subject to ratification within the Mexican 

government and is not scheduled to enter into force until January 1, 2016 in any event.

Thus the new agreement will not provide access to the four blocked Houston – Mexico 

markets named herein in time for Southwest’s planned sales and service. 

III. Southwest’s Houston-Mexico Service Will Provide Enormous 

Benefits to U.S. Consumers. 

Southwest’s proposed service will generate new, low-cost travel options for a 

large number of U.S. consumers. A recent analysis by Campbell-Hill Aviation Group 

concludes that Southwest’s competition will reduce fares in its four proposed Houston –

 5 United-ExpressJet/SkyWest HOUSTON-MEX NOAT, p. 2. See also United-SkyWest HOUSTON-SJD 

NOAT, p. 2, where DOT acknowledged Southwest’s concerns that United and its partner carriers should 

not be permitted to hold all three designations at any one time. To accomplish this outcome, DOT made 

SkyWest’s authority effective upon the date of withdrawal of ExpressJet’s authority. However, since that 

time, Spirit has been awarded the third designation and thus no more U.S. carrier designations are 

available. 
Application of Southwest Airlines Co.

December 11, 2014

5

Mexico markets by an average of $117 round-trip, 25% below current fares. (Exhibit 1.) 

These fare reductions are projected to stimulate an additional 273,000 passengers 

annually in the four markets. (Exhibit 2.) The combination of these reduced fares and 

resulting passenger stimulation will generate $33 million annually in consumer fare 

savings.

6 (Exhibit 3.) These results demonstrate the enormous impact that Southwest 

Airlines can have in U.S. – Mexico markets when simply allowed to compete.

In addition, Southwest’s Houston-Mexico flights will offer new travel options to 

millions of passengers in U.S. cities beyond Houston. Southwest has an average of 

151 daily departures at Houston Hobby Airport to 43 nonstop domestic destinations. 

These cities will be given new, low-fare connecting options to Mexico from the 

inauguration of Southwest’s Houston-Mexico flights. The Campbell-Hill analysis

concludes that, in total, Southwest’s service in the four planned Houston – Mexico 

markets will provide new low-cost connecting options to 138 beyond-Houston markets, 

85 of which currently have no nonstop service to the respective Mexican destinations

today. (Exhibits 4-7.) The total existing O&D passenger pool in these 138 markets is 

5.8 million passengers. (Exhibits 4-7.) Southwest’s ability to link its extensive domestic 

service in Houston with new nonstop service to four popular U.S. - Mexico destinations 

will create significant benefits for large numbers of consumers. 

IV. Additional Information

In further support of this Application, Southwest states the following:

 6

 These savings projections are in fact conservative because they apply only to local Houston–Mexico 

passengers and do not include fare savings or other benefits for the substantial number of passengers in 

other cities that will connect to Southwest’s Mexico flights at Houston. 
Application of Southwest Airlines Co.

December 11, 2014

6

1. Southwest is a Texas corporation with its principal place of business at 2702 

Love Field Drive, Dallas, Texas, 75235. 

2. Southwest is a citizen of the United States as defined by Section 40102(a)(15) of 

Title 49 of the United States Code and Section 204.2(c) of the Department’s Economic 

Regulations. Southwest’s president and at least two-thirds of its board of directors and 

other managing officers are citizens of the United States. Southwest is under the actual 

control of citizens of the United States and more than 75 percent of its voting interest is 

owned or controlled by persons that are citizens of the United States. 

3. Southwest is fit, willing and able to conduct the services described in this 

application. Southwest commenced commercial service in 1971 as an intrastate airline, 

and has operated as a U.S. certificated air carrier since 1979. Southwest requests that 

the Department take official notice pursuant to Rule 24 of its Rules of Practice (14 CFR 

§ 302.24) of Southwest's Certificate of Public Convenience and Necessity for Interstate 

Air Transportation, originally issued by Order 79-6-187, and subsequently amended by 

Order 86-5-60 (May 15, 1986), Order 98-7-8 (July 8, 1998), and Order 2005-12-4 

(December 9, 2005). Southwest has consistently maintained its Certificate in good 

standing for the past 35 years.

4. Furthermore, Southwest already holds exemption authority from the Department 

authorizing service to a number of U.S. – Mexico markets, such as BWI-CUN, AUSCUN, AUS-SJD, DEN-CUN, MKE-CUN, MDW-CUN, SAT-MEX, SAT-CUN, SNA-MEX, 

and SNA-SJD. 7

 Pursuant to Rule 24 of the Department’s Rules of Practice, Southwest

 7 See Notice of Action Taken issued October 23, 2013 in Docket DOT-OST-2013-0180.
Application of Southwest Airlines Co.

December 11, 2014

7

asks the Department to take official notice of all data on file necessary to establish 

Southwest’s fitness.

5. Southwest proposes to publish the flights for sale in the first quarter 2015 and 

commence service between HOU and CUN, PVR, MEX and SJD on or about October 

15, 2015. Southwest will provide daily service in all four markets using Stage III Boeing

737-700 aircraft configured for 143 seats. 

6. The requested exemption authority is fully consistent with the terms of the U.S.-

Mexico Air Transport Agreement (Agreement) as amended by the two governments on 

December 12, 2005. The Agreement authorizes carriers designated by the U.S. to 

operate “[f]rom a point or points in the United States to a point or points in Mexico.” 

Annex I(A)(1)(a). Pursuant to the Agreement, three U.S. carrier designations are 

authorized on U.S. – CUN, PVR and SJD routes, Annex I(B)(5), and two U.S. carrier 

designations are authorized on U.S. – MEX routes, Annex I(B)(4). As noted above, one 

U.S. carrier designation is available in both the Houston – CUN and Houston – PVR 

routes but no U.S. carrier designations are currently available on the Houston – MEX 

and Houston – SJD routes. As explained above, Southwest is seeking the withdrawal 

of one existing designation in both the Houston – MEX and Houston- SJD markets to 

enable Southwest to enter and compete.

7. The environmental impacts of Southwest’s proposed services are de minimis, 

and will therefore not lead to a near-term annual increase in aircraft fuel consumption of 

10 million gallons or more. Accordingly, grant of this application will not constitute a 

“major regulatory action” within the meaning of the Energy Policy and Conservation Act 

of 1975 or Part 313 of the Department’s Economic Regulations. 
Application of Southwest Airlines Co.

December 11, 2014

8

8. Southwest will accept and comply with the terms and conditions that the 

Department routinely imposes on exemption authority for scheduled foreign air 

transportation. 

WHEREFORE, Southwest’s proposed Houston - Mexico service will provide 

independent competition and significant new low-cost travel options for passengers and 

shippers in both the United States and Mexico. Accordingly, Southwest requests that 

the Department act expeditiously to: (1) withdraw one of the two authorities held by 

United and its partner carriers in the Houston – MEX and Houston -- SJD markets, and 

(2) grant the exemption authority and corresponding designations requested by 

Southwest herein to enable it to serve HOU-CUN, HOU-MEX, HOU-PVR, and HOUSJD as described above. 

Respectfully submitted,

______________________

Robert W. Kneisley

December 11, 2014
CERTIFICATE OF SERVICE

I hereby certify that on December 11, 2014, a copy of the foregoing was served 

via e-mail on the following persons:

msinick@ssd.com (Alaska Airlines)

howard.kass@aa.com (American Airlines)

robert.wirick@aa.com (American Airlines)

sascha.vanderbellen@delta.com (Delta Air Lines)

chris.walker@delta.com (Delta Air Lines)

matwood@cozen.com (Frontier Airlines)

stephen.lachter@cozen.com (Frontier Airlines)

robert.land@jetblue.com (jetBlue Airways)

jhill@cooley.com (jetBlue Airways)

perkmann@cooley.com (jetBlue Airways)

robert.cohn@hoganlovells.com (Republic Airways)

patrick.rizzi@hoganlovells.com (Republic Airways)

dkirstein@yklaw.com (Spirit Airlines)

jyoung@yklaw.com (Spirit Airlines)

thomas.ting@suncountry.com (Sun Country Airlines)

dan.weiss@united.com (United Airlines)

steve.morrissey@united.com (United Airlines)

gmurphy@crowell.com (United Airlines)

sseiden@crowell.com (United Airlines)

john.varley@virginamerica.com (Virgin America) 

susan.kurland@dot.gov

brian.hedberg@dot.gov

brett.kruger@dot.gov

reese.davidson@dot.gov

todd.homan@dot.gov

peter.irvine@dot.gov

cristinasa@state.gov

info@airlineinfo.com

__________________________

Leslie C. Abbott
EXHIBITS
Note: Fares Include baggage and rebooking/cancellation fees but exclude taxes.

Source: Appendix

Exhibit 1

$459

$534

$481 $477

$378

$335

$351 $346 $360

$538

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

$550

$600

MEX PVR SJD CUN Average

Current Estimated Average After Southwest Houston

Average 

Roundtrip Fares

Southwest’s Service Will Reduce Roundtrip Fares 

By $117 or 25% on Average In the Four Houston-Mexico Markets

-$81 -$203 -$183

-$134

Note: Includes only local passengers. No fare savings or benefits are calculated for new passengers connecting over Houston.

- $117 (25%)
Source: Appendix.

Exhibit 2

38,065

293,891

44,399

86,282

272,844

697,416

423,746

155,069

213,281

17,331

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

550,000

600,000

650,000

700,000

MEX PVR SJD CUN 4 Market Total

Current Estimated After Southwest

Houston

One-Way Passengers

Southwest’s Service Will Increase Passengers 

By Over 270,000 in the Four Houston-Mexico Markets

+80,610 +27,067 +48,217 +117,775 +273,670

Note: Includes only local passengers. No fare savings or benefits are calculated for new passengers connecting over Houston.

Stimulation with

WN Nonstop Service:
Note: Fares Include baggage and rebooking/cancellation fees but exclude taxes.

Source: Appendix .

Exhibit 3

$10.2

$5.7

$14.4

$33.4

$3.1

$0

$5

$10

$15

$20

$25

$30

$35

MEX PVR SJD CUN 4 Market Total

Houston Consumer Fare

Savings (Millions)

Southwest’s Service Will Produce Over $33 Million 

in Annual Fare Savings in the Four Houston-Mexico Markets

Note: Includes only local passengers. No fare savings or benefits are calculated for new passengers connecting over Houston.
SAN SAN SAN SAN

STL STL STL STL

MCI MCI MCI MCI

TUL TUL TUL TUL

OKC OKC OKC OKC

CRP CRP CRP CRP

AUS AUS AUS AUS

SAT SAT SAT SAT

ELP ELP MAF MAF MAF MAF ELP ELP

ABQ ABQ ABQ ABQ

DEN DEN DEN DEN

HRL HRL HRL HRL

SNA SNA SNA SNA

LAX LAX LAX LAX

TUS TUS TUS TUS

PHX PHX PHX PHX

OAK OAK OAK OAK

PDX PDX PDX PDX

SLC SLC SLC SLC

SEA SEA SEA SEA

LAS LAS LAS LAS

DAL DAL DAL DAL

CUN CUN CUN

HOU HOU HOU

LITLIT LITLIT

MDW MDW MDW MDW

IND IND IND IND

MEM MEM MEM MEM

BOS BOS BOS BOS

PIT PIT PIT PIT

Southwest’s Houston-CUN Service Will Provide Low Fare Access to 

30 Potential Markets Beyond HOU, 13 of Which Have 

No Nonstop Service to CUN Today 

No nonstop CUN service

Market with nonstop service to CUN

155,069

2,108,361

2,263,430

Existing O&D Passengers – CY 2013

Houston-CUN

Beyond HOU to CUN

Total

Exhibit 4

Note: Markets limited to contiguous states and 40% circuity. Stimulation is not included in numbers above.

Source: Adjusted MIDT, CY 2013 and Innovata schedules.
TPA TPA TPA TPA

AUS AUS AUS AUS

PNS PNS PNS PNS

MAF MAF MAF MAF

BHM BHM BHM BHM

ABQ ABQ ABQ ABQ

OKC OKC OKC OKC

GSP GSP GSP GSP

SLC SLC SLC SLC DEN DEN DEN DEN

STL STL STL STL

MCI MCI MCI MCI

TUL TUL TUL TUL

CLT CLT CLT CLT

EWR EWR EWR

OAK OAK DCA DCA DCA DCA OAK OAK

SEA SEA SEA SEA

PDX PDX PDX PDX

SNA SNA SNA SNA

LAX LAX LAX LAX

MEX MEX MEX

DAL DAL DAL DAL

HOU HOU HOU

SAT SAT SAT SAT

MDW MDW MDW MDW

LITLIT LITLIT

IND IND IND IND

MEM MEM MEM MEM

PIT PIT PIT PIT

BNA BNA BNA BNA

BOS BOS BOS BOS

LGA LGA LGA LGA

BWI BWI BWI BWI

RDU RDU RDU RDU

ATL ATL ATL ATL

CHS CHS CHS CHS

MSY MSY MSY MSY ECP ECP ECP ECP JAX JAX JAX JAX

MCO MCO MCO MCO

LAS LAS LAS LAS

FLL FLL FLL FLL

No MEX nonstop service

Market with nonstop service to MEX

Note: Markets limited to contiguous states and 40% circuity. Stimulation is not included in numbers above.

Source: Adjusted MIDT, CY 2013 and Innovata schedules.

Houston-MEX

Beyond HOU to MEX

Total

213,281

2,507,128

2,720,409

Existing O&D Passengers – CY 2013

Southwest’s Houston-MEX Service Will Provide Low Fare Access to

43 Potential Markets Beyond HOU, 26 of Which Have 

No Nonstop Service to MEX Today 

Exhibit 5
MEM MEM MEM MEM

BHM BHM BHM BHM

STL STL STL STL

GSP GSP GSP GSP

MCI MCI MCI MCI

TUL TUL TUL TUL

OKC OKC OKC OKC CLT CLT CLT CLT

PNS PNS PNS PNS

AUS AUS AUS AUS

EWR EWR EWR

DCA DCA DCA DCA

MDW MDW MDW MDW

DAL DAL DAL DAL

HOU HOU HOU

PVR PVR PVR

SEA SEA SEA SEA

DEN DEN DEN DEN

PDX PDX PDX PDX

BNA BNA BNA BNA

BOS BOS BOS BOS

PIT PIT PIT PIT LGA LGA LGA LGA

BWI BWI BWI BWI

IND IND IND IND

RDU RDU RDU RDU

ATL ATL ATL ATL

LITLIT LITLIT

CHS CHS CHS CHS

MSY MSY MSY MSY ECP ECP ECP ECP JAX JAX JAX JAX

MCO MCO MCO MCO

TPA TPA TPA TPA

FLL FLL FLL FLL

No PVR nonstop service

Market with nonstop service to PVR

Houston-PVR

Beyond HOU to PVR

Total

17,331

383,670

401,001

Existing O&D Passengers – CY 2013

Southwest’s Houston-PVR Service Will Provide Low Fare Access to 

34 Potential Markets Beyond HOU, 24 of Which Have 

No Nonstop Service to PVR Today 

Exhibit 6

Note: Markets limited to contiguous states and 40% circuity. Stimulation is not included in numbers above.

Source: Adjusted MIDT, CY 2013 and Innovata schedules.
GSP GSP GSP GSP

BHM BHM BHM BHM

OKC OKC OKC OKC

TUL TUL TUL TUL

MCI MCI MCI MCI

STL STL STL STL

AUS AUS AUS AUS

PNS PNS PNS PNS

EWR EWR EWR

DCA DCA DCA DCA

DAL DAL DAL DAL

MDW MDW MDW MDW

SJD SJD SJD

HOU HOU HOU

ATL ATL ATL ATL

CLT CLT CLT CLT

RDU RDU RDU RDU

CHS CHS CHS CHS

BWI BWI BWI BWI

MSY MSY MSY MSY

LGA LGA LGA LGA

ECP ECP ECP ECP JAX JAX JAX JAX

BOS BOS BOS BOS

BNA BNA BNA BNA

PIT PIT PIT PIT

MCO MCO MCO MCO

MEM MEM MEM MEM

TPA TPA TPA TPA

IND IND IND IND

FLL FLL FLL FLL

LITLIT LITLIT

No SJD nonstop service

Market with nonstop service to SJD

38,065

352,662

390,727

Existing O&D Passengers – CY 2013

Houston-SJD

Beyond HOU to SJD

Total

Southwest’s Houston-SJD Service Will Provide Low Fare Access to

31 Potential Markets Beyond HOU, 22 of Which Have 

No Nonstop Service to SJD Today 

Exhibit 7

Note: Markets limited to contiguous states and 40% circuity. Stimulation is not included in numbers above.

Source: Adjusted MIDT, CY 2013 and Innovata schedules.
Appendix: Detail of Consumer Benefits From

Southwest Houston - Mexico Service 
Consumer Benefits Methodology - Passengers

 (Traffic Stimulation and Fare Savings)

• Local O&D passengers were estimated by adjusting MIDT/1 data for direct bookings using Campbell-Hill 

methods. The data period was CY 2013. Mexico low cost carriers are excluded from the passenger numbers 

because they reported very limited MIDT data.

• The current average market fares were calculated using adjusted MIDT traffic and include baggage and 

cancellation/rebooking fees calculated from U.S. DOT Form 41 data. Fares exclude all taxes.

• The estimated fares after low cost service is introduced were estimated using log-log yield curves (fare per 

mile) based on the U.S. DOT domestic Origin-Destination passenger survey for CY 2013. Each observation in 

the yield curves was weighted by the number of LCC passengers in the market. Four curves were derived:

– Low Cost Carrier curve for leisure markets served nonstop by low cost carriers

– Low Cost Carrier curve for business markets served nonstop by low cost carriers

– Legacy Carrier curve for leisure markets served nonstop by low cost carriers

– Legacy Carrier curve for business markets served nonstop by low cost carrier

$15 was added to each calculated fare to account for higher airport costs in Mexico than the U.S. The fare 

after Southwest service was calculated as the weighted average fare including Southwest’s market share.

• Passenger stimulation

– Fare: Elasticity calculated for each market using an estimate of business/leisure mix from MIDT data 

and a business Ep/2 of -0.79 and a leisure Ep of -1.59/3. Due to the high leisure concentration of the 

markets, the average Ep is approximately -1.5.

– Service: QSI-based function using seat capacity to measure service change. The analysis uses an 

average aircraft size of 143 seats.

• Consumer benefits

– Campbell-Hill utilized an FAA formula for existing and stimulated passengers, and the net change in 

average market fare (See Consumer Surplus methodology in FAA, Airport Benefit-Cost Analysis 

Guidance”, Office of Aviation Policy and Planning, Federal Aviation Administration, December 15, 1999.)

1/ MIDT stands for Market Information Data Tapes. It includes O&D passenger and fare data gathered via travel agencies. Raw MIDT passenger numbers must be 

adjusted to account for direct bookings.

2/ Ep = demand (traffic) elasticity with respect to price.

3/ FAA, Airport Benefit-Cost Analysis Guidance”, Office of Aviation Policy and Planning, Federal Aviation Administration, December 15, 1999.

Appendix 1

Page 1
Summary of Consumer Surplus Benefits From

Initial Southwest Houston-Mexico Service

Appendix 1

Page 2

Consumer Benefits

One-Way New CY 2013

Predicted 

Service 

Fare 

Before

Fare 

After Fare Fare Total Existing New Total

O&D 

Market Mileage

Weekly WN

Roundtrips Passengers Stimulation

WN 

Nonstop

WN 

Nonstop Savings Ep Stimulation Stimulation Passengers Passengers Passengers

(A) (B) (C) (D) (E) (F) (G) (H) (I) (J) (K) (L) (M)

MEX 742 7 213,281 4.4% $229 $189 $40 -1.43 32% 80,610 $8,595,574 $1,624,353 $10,219,927

PVR 877 7 17,331 21.2% $269 $168 $101 -1.54 111% 27,067 $1,756,121 $1,371,341 $3,127,462

SJD 1,000 7 38,065 17.1% $267 $176 $92 -1.54 94% 48,217 $3,485,972 $2,207,869 $5,693,841

CUN 792 7 155,069 6.0% $240 $173 $67 -1.53 66% 117,775 $10,405,708 $3,951,574 $14,357,283

423,746 $238 $180 $59 273,670 $24,243,375 $9,155,138 $33,398,513
(A) Nonstop Miles.

(B) Southwest weekly roundtrips to be operated initially.

(C) Adjusted MIDT for CY 2013/1 .

(D) Predicted Service stimulation from Campbell-Hill QSI Model.

(E) Average Fare is based on Adjusted MIDT data for CY 2013. Includes average checked baggage and rebooking/cancellation fees per 

passenger derived by Campbell-Hill using DOT Form-41 and DOT data.

(F) The “After WN Service” fare is based on a weighted average of the fare predicted by the relevant LCC yield curve (business or leisure) and 

the relevant legacy carrier yield curve (business or leisure) in markets with LCC competition.

(G) Column E – Column F.

(H) See Page 4. Derived for each market based on the weighted average of business and leisure passengers. 

(I) Calculated using the price elasticity coefficient from Column H. 

The arc elasticity formula is: Arc Ep = [(Q2-Q1)/((Q1+Q2)/2)] / [(P2-P1)/((P1+P2)/2)] , where Q1 = passengers before new LCC service,

Q2 = Passengers after new LCC service, P1=Fare Before new LCC service, P2 = Fare After new LCC service.

(J) (Column C x (1+ Column D) x (1+ Column I)) – Column C.

(K) Column C x Column G.

(L) Column G x Column J x 0.5. For Consumer surplus calculation method see: “FAA Airport Benefit-Cost Analysis Guidance”, Office of 

Aviation Policy and Planning, Federal Aviation Administration, December 15, 1999.”

(M) Column K + Column L.

Appendix 1

Page 3

1/ MIDT stands for Market Information Data Tapes. It includes O&D passenger and fare data gathered via travel agencies. Raw MIDT must be adjusted to account for 

direct bookings.

Summary of Consumer Surplus Benefits From

Initial Southwest Houston-Mexico Service