OK, I'm in for a final round.
You're right, Southwest has a lower cost structure than the other majors. That allows them to charge lower fares, but it doesn't COMPEL them to do so. That's corporate policy. They could charge more in almost every one of their markets, get it, and still be below below the normal pricing formulas of the other guys, but choose not to. It might be interesting speculation as to whether that policy will change somwhat as the "regime" changes, but let's leave that for another thread.
And your're also spot on that when any carrier undercuts the others in a market, everyone usually matches. The degree of the undercut, particularly in the higher fare buckets, is what validates my paragraph #1. In my opinion, of course!
As far as using the record traffic numbers of late to prove passenger acceptance of current fare levels...huh? Business people have to travel, and at an every-increasing rate. Those are the people who are screaming bloody murder about the current fare structures, not dear Aunt Tillie in Miami who's just looking for a cheap way to go see the grandkids in Missoula. There have been countless articles about road warriors--most of whom are either frequent transcon flyers or live in "fortress hub" cities--who, to paraphrase the line from the old movie "Network" are mad as hell but HAVE to take it as there is no other viable way to conduct business today other than to fly.
For that matter, I'm convinced that a significant part of the current outcry (fueled by the media, of course) about the "horrible" service on the Majors today is really anger and frustration about fare levels. People who pay upwards of $2400 to fly roundtrip coach between BOS and LAX aren't really upset that the flight crew didn't smile, the coffee was cold, etc., etc. They're angry that they are being charged fares like that and STILL being treated like shmucks. (sp?)
The financials for this industry have always been borderline frightening, at least. It'll be interesting to see if they behave as they always have when the economy begins to sour--whenver THAT may be...
Tyler's Somewhat Redeemed Dad