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DENVER - Southwest Airlines will resume service in Denver next year after a 20-year absence, likely triggering lower fares yet posing fresh problems for airlines already struggling with higher fuel prices.
Although Southwest has shunned Denver International Airport for more than a decade because of its high costs, the Dallas-based carrier - in the midst of an expansion - reconsidered because those costs have declined.
It will compete head-to-head against United Airlines as it emerges from bankruptcy and Denver-based Frontier Airlines, which combined have about 75 percent of DIA’s market.
Frontier’s stock dropped 29 percent on the news, closing at $7.68 a share on the Nasdaq Stock Market.
Representatives of both United and the low-fare Frontier noted they already face Southwest in other cities and that they will be competitive on ticket prices when Southwest is in Denver.
Southwest will start small with plans to expand as the traffic builds. Details on when it will start, schedules, fares and gates will be released next week.
‘‘We’ve been concerned about the costs at DIA in the past but they have done a remarkable job in getting their costs downs to levels that make sense to Southwest Airlines,’’ Southwest Chief Executive Officer Gary Kelly said.
Another factor was current ticket prices at DIA, which he called high. ‘‘We’ll have a modest start in Denver early next year and we’ll just have to take it from there,’’ Kelly said during a conference call with the news media.
Airport officials, who have courted Southwest since DIA opened in 1995, said the airline will generate new competition, which will be good for passengers.
Airport spokesman Steve Snyder declined to provide specifics until next week but said the airline likely will be based on Concourse C.
‘‘It’s a solid airline with a great reputation,’’ he said. ‘‘It’s one that people have been asking about since the airport opened.’’
Among the state leaders praising Southwest's return was U.S. Sen. Ken Salazar, who said the added choice for air travel will benefit both Colorado residents and the state's tourism industry.
“We welcome Southwest Airlines to Denver with open arms. Tourism is an important part of Colorado’s economy and an additional airline makes it easier for travelers to visit our beautiful state,” Salazar said.
Southwest operated in Denver from 1983 to 1986 but refused to return when DIA opened in 1995 because of costs. At the time, airlines paid an average of $16.85 per passenger in fees associated with landings, gate rent and other lease costs.
That average has dropped to an estimated $14.30 per passenger in 2005 as airport officials have reduced operating expenses, debt has leveled off and passenger traffic has grown, airport finance manager Amy Weston said.
Each airline pays a different per-passenger rate because of the variables involved in its operation. United Airlines’ fee today is about $20 while Frontier pays closer to the $8 to $9 range, Weston said. Southwest would pay about $8 to $9 per passenger.
In addition, non-airline revenue from such services as parking and concessions has increased from $6.88 per passenger in 1995 to $9.29 estimated for 2005, she said.
The development comes as airlines have grappled with rising fuel prices and aggressive competition that has kept rates low.
United, with 56.7 percent of the Denver market, and Frontier, with 17.3 percent, will face challenges with the addition of Southwest, airline analyst Ray Neidl of Calyon Securities said.
‘‘They’re going to affect the pricing structure that Frontier and United are somewhat living with,’’ he said. ‘‘It’s a fairly high-fare market. That’s one of the things Southwest looks for.’’
Aviation analyst Mike Boyd of The Boyd Group predicted fares would not drop significantly because he believes they already have been lowered by the competition between United and Frontier.
‘‘There is no guarantee that Southwest won’t get pummeled in Denver,’’ he said.
Frontier spokesman Joe Hodas said he expects the airline to stay competitive. ‘‘We’ve been building this airline for 12 years to compete against anybody, Southwest or otherwise,’’ he said.
United spokesman Jeff Green said the airline is awaiting details about Southwest’s routes and frequencies. ‘‘United will be competitive,’’ he said.
United and Frontier both pointed out differences between their airlines and Southwest, from assigned seating to amenities.
‘‘There’s a lot of competition out there,’’ Green said. ‘‘Denver passengers are going to benefit from Southwest coming in because it’s more competition.’’
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