Southwest Airlines said on Tuesday it will start a code share partnership with Canada's WestJet Airlines, marking Southwest's first foray into the Canadian market and a key boost for WestJet's expansion plans.
Under the agreement, which will be put together by late next year for regulatory approval, the two airlines will sell seats on each other's flights, which means both get access to new customers with lower marketing costs.
The move is Southwest's first international code sharing agreement though it had a domestic arrangement with ATA Airlines, which went out of business in April. It is the first such deal for WestJet, Canada's No. 2 airline.
The agreement is seen giving WestJet additional weight in the crucial trans-border market that is dominated by larger rival Air Canada and will add new routes to major US destinations.
"It's very positive for WestJet, no question about it," said Cameron Doerksen, an analyst at Versant Partners. "WestJet's trans-border routes are limited to sun and leisure destinations. But when you include Southwest's network, WestJet travelers will get access to almost all major cities in the US. It puts them on an equal footing with Air Canada."
Sean Durfy, WestJet's chief executive, said the carrier now claims about 10 percent of Canada-US trans-border traffic while Air Canada has 35 percent of the market.
"By 2013 we want to have 20 to 25 percent of that market," Durfy said. "Southwest is a huge piece of that puzzle going forward."
Southwest, which invented the low-cost carrier model and has a range of valuable fuel hedges on its books, is one of the few airlines expected to expand routes in the next year or two as many carriers cut back on flights to reduce fuel costs.
The two airlines have also entered into a distribution agreement, which will let WestJet customers book flights on Southwest's web site.
Southwest will also look for more code-sharing partners for other international and resort destinations, King said. "We are talking with other carriers about Mexico, the Caribbean and Hawaii," she said.
WestJet was founded in 1996 as a Western Canadian regional airline modeled on Southwest and has quickly grown into the country's second-largest airline with a fleet of 75 Boeing 737 aircraft.
WestJet plans to add 46 more of the planes by 2013 but Durfy said the Southwest agreement may prompt a further expansion of the fleet, though he declined to offer details.
"We have put our fleet plan in place, but it is flexible," he said. "But if this goes as well as we want, there is tremendous upside in our fleet plan."
