We used to call it the Southwest Effect.

Now, we just call it stimulation. The idea that adding new flights to a market will create incremental passengers.

It’s not a phenomenon exclusive to Southwest by any stretch. Long ago, when the Texas airline was still expanding its low-cost model across the United States, industry watchers noticed funny things when Southwest entered a market. Rather than steal passengers from the other airlines, the new flights somehow created new passengers out of thin air.

A market with 5,000 daily passengers split between three big airlines could see another 2,000 daily seats from Southwest. That was a problem for the other three airlines, as another 40% of capacity entered the market with low fares. But rather than split the 5,000 passengers four ways, 7,000 passengers would show up.

Where were those passengers before? Not flying. Southwest created 2,000 new passengers with low fares who didn’t exist. In oversimplified terms, that is stimulation.

Stimulation certainly was not exclusive to Southwest. The low-cost model ultimately evolved into the ultra-low-cost model, which saw the same effect. Other airlines around the world were certainly leveraging the dynamic at the same time, but Southwest was given the credit. Much of the growth in aviation in the 2000s and 2010s could be attributed to stimulation. That appears to be changing.

The prior 40 years of air travel have grown and thrived in a bit of a zeitgeist - that flying was the expensive part of travel.

And it was, to an extent. A room at a budget hotel in the mid-1970s cost about $9. A flight from New York to L.A. was $550.

Today, budget hotel rooms are closer to $90, while the flight? $400.

A lot has happened between the mid-1970s and today, including the deregulation of the airlines in the U.S. But the trend is the same: when it comes to fares, despite how it feels, they have been moving down more than up.

Our simple chart today looks at the average price of various parts of the traveler budget in 2025 compared to a decade prior. Things are more expensive (exclaimed Captain Obvious). But airfare is not one of those things.

This is creating a problem with the same stimulation that fed air travel growth for so long. It's not as powerful anymore. Airfare is no longer the deciding factor between whether people consider a vacation, drive, or just stay home. Today, the price of almost everything else is driving vacation budgets.

Saving $500 on airfare for a family of four was a big deal when hotels were $75 a night, and you could get into Disney for less than $50. Today, hotels are closer to $250 a night, and it could cost you $200 to see the famous mouse. No longer can low airfares stimulate new vacationers out of thin air.

Granted, this does not mean that low fares no longer matter to the vacationer, rather that airfares aren't the deciding factor between flying, driving, or just staying home. Everything else is now much more expensive.

Nor does this mean that flyers cannot still be stimulated to visit friends and relatives (VFR, we call it in the biz). That equation is different and unique to the friends or relatives being visited.

But for the leisure passenger, seeing low airfares no longer sparks thoughts of travel. More likely, it reminds them just how expensive everything else has gotten.

There are so many other dynamics embedded in such a simple chart. The implications of the shift in spending for the potential vacationer have warranted several hour-long discussions with airlines and investors alike. What does this mean for network airlines? What does it mean for growth assumptions? What about seasonality?

But consider, as well, that the airline for which this effect was originally named no longer relies upon it. Southwest itself has largely moved upmarket in recent years, following the new trend. That trend is no longer one of convincing new travelers to fly, but of extracting as much of the budget from those who are already traveling. So far, it’s working.

The end of the Southwest Effect affects Southwest little. This is a ULCC story, and a red flag to those who expect the rapid growth we saw worldwide in the 2010s to continue.

Now, consider how this scenario could resolve itself back toward the airlines regaining the power of stimulation. Everything else could become cheaper (not likely), or airfare could become more expensive again.

Be careful what you wish for.

Significant capital remains locked in growing spare parts inventory in aviation. Why, exactly?

We were finally able to get Ian Gurekian, CEO of AVIAN Inventory Management, on the podcast, and he certainly didn't disappoint.

From airline consulting to large aircraft leasing to helicopters, and now to managing inventory capital requirements, Ian has an interesting background. We talk about all of it, but spend most of the time discussing the innovative moves being made at Avian.

Ian knows the industry, and we will definitely have him back on to discuss all of it.

You can listen to the podcast or watch it.

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