Southwest's Artful Approach

There are some things Southwest Airlines (LUV Quote - Cramer on LUV - Stock Picks) just doesn't want to do -- and now it's found someone else to do them.

A partnership with ATA Airlines, forged in a 2004 deal to acquire gates at Chicago's Midway Airport, is providing Southwest with options it never had before.

Through a code-share agreement, Southwest can put its passengers on ATA flights to congested airports like New York's LaGuardia, Dallas-Fort Worth International and Washington's Reagan National, on over-water flights to Hawaii and, potentially, on international flights, as well.

Privately held ATA gets something too -- passengers. Already, about 25% of all ATA bookings result from the Southwest relationship. "We have Southwest feeding us," says Joseph Loew, a senior vice president at ATA.

The deal is good business for both airlines. Southwest says its code-share revenue, derived from tickets that involve connections between the two airlines, was $50 million in 2005. Each carrier gets the revenue for flights on its aircraft. When passengers use the Southwest site to book ATA-only flights, ATA pays Southwest a fee for that service. Code-shares allow airlines to sell tickets on one another's flights.

ATA does things that can't be easily integrated into the Southwest model of quick turnaround times, high utilization of a Boeing 737 fleet and domestic-only flying, Loew says. "They have a very good business model, and they have been successful because they stick to it," he says.

Beyond the Sea

Midway is the focus of the two airlines' partnership. Southwest has more than 200 daily departures from that airport, and spokesman Ed Stewart says the number could grow to about 300. That's more than Southwest has at any other airport.

ATA offers 17 weekday departures, including six daily to LaGuardia, five to Dallas and four to National. The arrangement "gives Southwest the ability to poke some people in the eye without being at these airports, which is vitally important as they try to preserve their quick turns and productivity," says aviation consultant Robert Mann.

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