Competition Takes Flight: The Impact of Low-Cost Carrier Entry on Legacy Airline Fares at Chicago O'Hare

This thesis examines cross-airport competitive effects by analyzing whether Southwest Airlines’ entry at Chicago Midway exerts pricing discipline on legacy carriers at Chicago O’Hare. Using a quasi-experimental design, I identify 18 domestic routes where Southwest entered Midway between 2004 and 2021 on city-pairs previously served exclusively by legacy carriers from O’Hare. Comparing median O’Hare fares one year before versus one year after entry, the aggregate median fare declined from \$181.83 to \$146.50—a 19 percent reduction. Fourteen of eighteen routes experienced fare decreases, with six showing statistically significant reductions at The aggregate effect approaches statistical significance (p = 0.061), though substantial heterogeneity exists across markets, with leisure-oriented routes showing larger fare responses than business-heavy markets. The findings reveal meaningful cross-airport competitive pressure with implications for airline competition policy and consumer welfare, particularly regarding public infrastructure investment in multi-airport metropolitan regions.