Southwest, WestJet strike code-sharing agreement

The airlines would share revenues from U.S. and Canadian flights.

DALLAS — Southwest Airlines Co. said Tuesday it plans to sell international travel — a first for the low-fare carrier — through a partnership with Canada’s WestJet.

The Canadian airline would actually do the cross-border flying, but Southwest would be able to sell the tickets and share the revenue.

Southwest and WestJet Airlines Ltd. said they agreed to strike a so-called code-sharing agreement and planned to announce schedules and other features of the deal by late next year.

The agreement is subject to review by U.S. and Canadian regulators.

“This is a big step. It’s very exciting to add additional destinations to the Southwest route map,” Chairman and Chief Executive Gary Kelly said in an interview.

Kelly said Southwest is talking to “close to a dozen” other carriers about similar deals to connect its customers to Hawaii, Mexico and the Caribbean by late 2009, and Europe and beyond in later years. He said such code-sharing agreements could bring in several hundred million dollars per year, a big chunk of the airline’s goal of increasing annual revenue by $1.5 billion.

Under most code-sharing deals, airlines sell tickets on each other’s flights and share the resulting revenue. Southwest passengers could connect to a WestJet flight to Canada. Frequent-flier programs are typically reciprocal.

The partnership announced Tuesday would let WestJet compete with bigger Air Canada for Canadians traveling to the United States. WestJet flies to 12 U.S. cities, including Los Angeles, Phoenix and Las Vegas — all served by Southwest. Southwest would also like WestJet to add service to other cities such as Denver, Baltimore and Chicago.

The number of Americans booking a Southwest-WestJet itinerary to Canada probably would be smaller but could help fill empty seats on Southwest connecting flights, Kelly said.

Southwest has no plans to fly into Canada. And although WestJet flies to Mexico, Jamaica and other sunny vacation spots, Kelly said Southwest was negotiating with other carriers for code-sharing to those locations.

The two airlines have similar histories. Southwest started in the 1970s ferrying passengers around Texas on three planes. It later expanded to both coasts and now serves 64 cities with about 3,400 daily flights and 34,000 employees.

Dallas-based Southwest has never offered international flights, and a code-sharing service to Hawaii ended when partner ATA Airlines failed.

WestJet was created as a regional carrier serving five cities in western Canada and has expanded to 49 locations in Canada, the United States, Mexico, and the Caribbean. Like Southwest, it uses Boeing 737 aircraft.

WestJet CEO Sean Durfy called the prospect of a Southwest deal “a defining moment for WestJet.” He said an agreement would significantly improve the reach of both airlines.

Airline industry experts said the partnership would generate new revenue for each airline, and in Southwest’s case, eclipse the $50 million that the airline got at the peak of the ATA deal, which ended when ATA filed for bankruptcy and shut down in April.

Betsy Snyder, an analyst with Standard and Poor’s, said WestJet’s large Canadian route network compared favorably to the ATA code-share, which involved limited cities, “so this could more than offset the loss of ATA.”

Stuart Klaskin, an aviation consultant in Miami, said the deal was an example of how Southwest can enter new markets without actually flying there, and generate new revenue while taking little risk.

Klaskin said the deal would be a warm-up for a similar expansion by Southwest into Mexico and Central America using a Mexican carrier, possibly Avolar, that follows WestJet’s low-fare approach in Canada.

“This is the perfect match,” he said of the Southwest-WestJet deal. “The airlines look very similar, and they have similar management philosophies.”