Southwest Looks Far Out To Mexico (LUV, CAL, XJT, AMR)

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Southwest Airlines Co. (NYSE: LUV) has announced its first efforts to go cross-border to our closest neighbor to the south. The discount airline carrier intends to build a codeshare partnership with Mexican carrier Volaris.  Be advised that this does mean that Soutwest’s orange planes will be seen over the skies of Mexicio and this codeshare agreement won’t take effectimmediately.  But if Volaris is able to expand between now and when this starts, it could eventually give Southwest a shot at capturing some of the business that has historically gone to competitors like Continental Airlines, Inc. (NYSE: CAL), ExpressJet Holdings Inc.(NYSE: XJT), and AMR Corp. (NYSE: AMR).

The two airlines have completed the first step in creating arelationship that will eventually allow the carriers to offer customersa seamless travel experience to a wide array of destinations.  This initial agreement puts the two airlines on a path toward bringingmore low fares across the U.S./Mexican border. The airlines plan toannounce codeshare flight schedules and additional features regardingthe partnership by early 2010.

Volaris is a new carrier which was founded in 2006 and currently serves39 routes in 23 cities throughout Mexico via a young airplane fleet of18 Airbus A319 and an A320 aircraft with an average age of 2.17 years.

Southwest’s southwest.com web site will become a distribution channelfor Volaris’ existing Mexican and future cross-border flights in theSpring of 2009 to purchase flights on Volaris’ existing flights.  Thisoption will be available for existing Volaris flights before actualconnecting codeshare flights are available for purchase.

The airlines are not announcing routes, schedules, or fares at thispoint, but the agreement will eventually allow each carrier to checkboth customers and baggage to a final destination.  Other areas ofpossible cooperation include frequent flier options, ground handling,and cargo.

For Southwest, this follows its international market efforts after theannouncement of a codeshare pact with Canadian carrier WestJet.  Wedon’t know how long it will take nor how this will work, but Southwestsaid it will continue on its path for international codeshareagreements.

Certain details of the codeshare and elements of the partnership aresubject to approvals by both the U.S. and Mexican governments andregulatory agencies.

Continental Airlines, Inc. (NYSE: CAL) and ExpressJet Holdings Inc.(NYSE: XJT) are currently the predominant carrier from Houston out ofthe IAH hub into Mexico.  AMR Corp. (NYSE: AMR) flies into Mexico atwhat looks to be more than 50 destinations from its hub in Dallas.Those are the two biggest destination routes from Texas, although thisdoes not take into consideration anything in and out of San Antonio,nor does it take into consideration any of the other competing citieswhere Southwest flies in and out of throughout the U.S. which also havedirect flights into cities in Mexico.

Jon C. Ogg
November 10, 2008