Southwest's Artful Approach

ATA also flies to Hawaii from five West Coast cities, all of them also served by Southwest. Last month, ATA moved its Bay Area operations from San Francisco, where Southwest doesn't fly, to Oakland, where Southwest has 150 daily departures. ATA serves Hilo, Honolulu and Maui from Oakland.

ATA is better positioned than Southwest to serve Hawaii because it has bigger airplanes and over-water certification, which Southwest lacks. Its Boeing 757s seat 250 passengers, while its 737-800s seat 160. Southwest's 737 models seat a maximum of 137. Starting in September, Southwest passengers will be able to redeem frequent flier miles for Hawaii trips.

The third part of the arrangement is the international element. ATA serves Cancun and Guadalajara from Midway, and Southwest is readying its reservations system to accommodate international pricing and transactions by 2009. "Once that is done, an agreement will be in place to code-share on our international flights," Loew says.

Land Grab

ATA is contemplating an expansion that includes 20% annual fleet growth over the next few years and the selection of new international routes. "It's hard to say where it will go, but we have Southwest as a powerful distribution channel, and our expansion is going to be focused on taking advantage of that relationship," Loew says. Stewart adds that Southwest could also choose to fly international routes on its own.

ATA filed for bankruptcy court protection in 2004, the victim of a syndrome that included a series of new aircraft arrivals just as the airline economy entered a nosedive. Once exclusively a charter carrier, ATA had grown into the country's 10th-largest carrier, with a route system based at its Midway hub.

The airline's most valuable asset, its Midway gates, was sought by AirTran Airways (AAI Quote), America West Airlines and Southwest. Southwest out-muscled its rivals, buying six gates for $30 million and providing ATA with a $47 million loan, in that rare sort of deal that so far has exceeded the expectations of both parties.