With talks about legacy airlines merging set off by the unprecedented price of fuel — I thought I might throw my 2 cents in on the consumer side. Competition = Low Prices, lack of competition is not a good thing for consumers — spin it however you want, it won’t be a good thing for airline ticket prices. A classic example of competition is the new entry of Virgin America into the U.S. domestic market.

I quickly pulled some historical data for the San Francisco - New York City flights launched several months ago by Virgin America, and it clearly shows the dramatic effect competition can have on prices — not necessarily a price war but an overall down trend. Both United and jetBlue are shown in comparison.

You’ll also notice on the chart a mistake airfare United Airlines filed when they miscoded all their matching one-way airfares as roundtrip – selling half price roundtrip tickets for a portion of that day. Many of our airfare email alert subscribers took advantage of this incredible deal/mistake, because we send out alerts in real-time after every airfare feed — not just once a day which would never have caught this short lived mistake.

For the most part airlines like to stay at an equilibrium with their competition ($1 lower or higher can shift market share - because people can and do pick the cheapest all the time). Although airline ticket prices in this market have gone up with the recent wave of mostly fuel related increases — while earlier this year the cheapest prices were pretty good — this is a definitely a good example of how competition in your home airport is a win for consumers.

When Virgin America started service between San Francisco and Los Angeles — Southwest immediately matched with several more non-stops. Convenient non-stops, great prices and connectivity to more markets provide the perfect consumer trifecta — all brought about by competition.

Virgin America has recently announced service between San Francisco and San Diego – the first in what we hope to be several new markets in 2008 — we will be tracking their progress closely in our Virgin America specific blog. Virgin America is one of my favorite topics — flair, flamboyant, competition, battle to get started all make for a great tale — and the best of all is competition (cheap airline ticket prices) for some lucky few on the west coast …