Southwest's Artful Approach

"If there was ever a win-win, this is it," Stewart says. "The court was looking for the best deal for ATA, and we wanted to expand at Midway, and this was one of the best ways to do it. We knew that one of the things that would attract ATA was the possibility of a code-share. It's small for us, but for them it was important to have that kind of reach.

"Nothing precludes us from going to these airports in the future, but there are so many other opportunities, and we have a limited number of aircraft," Stewart adds.

Aviation consultant Darryl Jenkins said the deal resembles Southwest's successful fuel-hedging strategy in that it shows the carrier's ability to seize opportunities and run with them. "These guys think things out," Jenkins says. Additionally, the deal allows Southwest "to take risks, but not with their own brand."

ATA, in effect, "serves as Southwest's proxy" in places that Southwest finds attractive, but not from an operating profile, Mann says. The deal also "got ATA out of a morass and gave them a revenue boost from the portions of their business that they were able to save."

Indianapolis-based ATA, which spent 16 months in bankruptcy before emerging in March, has a fleet of 29 airplanes, down from 64 before its bankruptcy, and had 2005 revenue of about $1 billion. CEO John Denison, a former Southwest executive, recently told The Indianapolis Star that ATA could go public within two years, assuming that its business stabilizes. The principal shareholder is New York investment firm Matlin Patterson.

The successful partnership between Northwest Airlines (NWACQ Quote) and KLM, part of Air France (AKH Quote), provides a model for ATA and Southwest, says Loew, who spent seven years at Northwest.

The Northwest and KLM alliance "was set up with a mindset that 'it doesn't matter which side I sit on, I will be happy with the agreement,'" Loew says. "So when I worked with KLM, we both tried to make things work. This is the only basis for long-term growth. Anything else is an illusion."