Skift Take

It makes sense that Southwest is finally realizing what other airlines have known for years — partnering with international airlines makes good business sense.

Southwest Airlines seeks to negotiate new codeshare and interline agreements with international airlines that would allow many long-haul customers arriving from Europe, Asia, or elsewhere to transfer to Southwest domestic flights on the same ticket, executives said in an interview.

The airline eventually also may try to reach agreements with its U.S. competitors to ensure Southwest customers can switch to another carrier at no cost to them when their flight is delayed or canceled. Though it is becoming less common, many U.S. still airlines rebook customers on other airlines during operational crises, but Southwest rarely does so, and when it does, it must pay competitors the full ticket price, rather than a reduced rate. This was a problem in July, when Southwest’s computer system failed, making it impossible for many passengers to reach their destinations.

Since the early 1970s, Southwest generally has pursued an independent strategy, preferring not to cooperate with other airlines. But as it has grown, it has determined it may be time to evolve, said Paul Cullen, Southwest’s vice president for finance. In Europe, Southwest clone Ryanair has made a similar calcuation, with the airline’s CEO saying it is also ready to pursue interline agreements. 

“There are probably a whole host of things we said we would never do, like flying into [New York] LaGuardia and flying internationally,” Cullen said. “As we’ve grown up, we have found that things we once feared have tremendous opportunity behind them. Interline and codeshare may just be one of the many things that are on the horizon that we would never have anticipated doing in the past.”

Cooperating with other U.S. carriers would be a small issue, likely only useful during for customers displaced by bad weather, mechanical issues, and computer meltdowns. But by building relationships with international airlines, Southwest suspects it could increase revenues and perhaps turn marginal flights into better performers.

Today, Southwest knows many travelers fly an international carrier to a major U.S. airport and then buy a second ticket on Southwest to reach their final destination. Southwest doesn’t know exactly how many passengers use this approach, but the airline has some anecdotal data. At Denver International Airport, for example, it calculates about 20 passengers each day transfer from Icelandair to Southwest. In Los Angeles, Southwest believes about 50 passengers from All Nippon Airways’ Tokyo flights transfer to Southwest. ANA lists instructions on its website for how its customers can create their own connections.

But buying two tickets is not convenient for travelers, and Southwest likely is losing revenue it could capture if passengers could buy a single ticket on Icelandair’s or ANA’s websites. For passengers, it would not necessarily matter if Southwest pursued interline or codeshare agreements, as the benefits for travelers are similar, but a codeshare relationship is closer for airlines involved.

For other smaller U.S. airlines without a global reach, relationships with international airlines account for substantial revenue. Alaska Airlines and JetBlue Airways have both aggressively negotiated agreements with long-haul carriers, and both rely on deals with Emirates, allowing passengers from Dubai to connect in Boston, New York and Seattle to reach many U.S. destinations. When JetBlue added a nonstop from Boston to Detroit in 2014, it said part of the impetus was to ensure Emirates customers could reach Detroit with only one stop.

“The way that we’re looking at it, we think we can fill up the less-than-peak flights,” said Steven Swan, Southwest’s director of international planning. “When we’re looking at when passengers could connect to our flights, we know we have empty seats in some of those markets. We’re looking to fill up the additional seats that could otherwise go empty.”

Though most airlines have agreements covering transfer passengers, Southwest cannot unilaterally pursue them. Instead, it needs clearance from its pilot union, which sometimes has opposed the agreements, fearing they eventually might preclude Southwest from adding more of its own international flights. Southwest is negotiating a new contract, and discussions have at times been acrimonious, with pilots calling for airline CEO Gary Kelly and COO Mike Van de Ven to resign after Southwest’s recent router failure.

Southwest Airlines Pilots’ Association spokesman Neal Hanks said the union is not opposed to Southwest adding relationships with international carriers, but he added that members want to make sure pilot jobs will be protected. Pilots previously approved two agreements Southwest sought with international carriers, one with Canada’s WestJet and the other with Mexico’s Volaris, though Southwest is not taking advantage of the two carveouts.

“[The union] needs to ensure that our pilots are contractually protected in those instances and these partnerships do not negatively affect our pilots’ careers,” Hanks said in an email “Job scope is the most important portion of a contract.”

Swan said Southwest is interested in working not only with niche discount carriers such as Icelandair, but also with larger, more established international carriers. He said there is no timetable for implementation, though he suggested Southwest could move on the first agreements soon after the pilot union allows them. The airline must also make sure its reservations system is ready for the new partnerships.

While revenue is a major consideration, it is not the only one. Historically, Southwest has flown only within the United States, and most Americans are familiar with it and its low cost brand. But elsewhere, Southwest is not well known, and as it has expanded to Mexico, it has discovered selling tickets in a foreign country is challenging. By working with international airlines, Southwest is betting it can increase the reach of its brand, which may help if it expands farther abroad.

“When we’re looking at some of our international markets, our brand’s awareness is a little bit lower than we’d like it to be,” Swan said. “This is another opportunity to get the Southwest brand into some of those markets earlier.”

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Tags: interline, southwest airlines

Photo credit: A Southwest Airlines Boeing 737 lands in San Francisco. Southwest is considering new relationships with international airlines, such as Japan's ANA. Bill Abbott / Flickr

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