Southwest Airlines looks at European and Asian code share partners

Low-cost US carrier Southwest Airlines plans to expand international service over time and would likely offer flights to Asia and Europe through partnerships, its chief executive said on Thursday.

"What is a deficiency for us right now that we intend to address is international," Gary Kelly said in an interview.

Southwest on Thursday announced a partnership with Mexican carrier Volaris to offer flights to five Mexico cities. Southwest will be able to offer service to the Caribbean once it completes its acquisition of discount rival AirTran, which flies there. The deal is expected to be completed in the first half of 2011.

Kelly said Southwest expects to decide soon whether it will add bigger Boeing planes that could be used to fly to Hawaii and Caribbean cities.

"I would see us serving Asia, Europe, South America, Australia with an international connection, partner-like product that we have with Volaris," Kelly said.

Southwest also said on Thursday that it planned to launch daily non-stop flights from Newark to Chicago and St. Louis in March 2011.

Kelly said Southwest had a cost advantage against bigger airlines that would enable it to offer lower fares as it enters new US markets.

He said Southwest's policy to not charge fees for checked baggage or flight-plan changes were key factors that distinguish it from legacy airlines and give it an advantage with value-seeking consumers.

Kelly said his company's costs were roughly half those of legacy airlines.

"We'll continue to be the competition in the United States for the high-cost carriers," Kelly said.

CONSOLIDATION

Kelly said he wouldn't be surprised to see more industry consolidation but made no predictions. In light of Delta Air Lines' 2008 acquisition of Northwest Airlines and the just-completed merger of United and Continental, he said he wasn't sure what else could happen among US legacy carriers.

But he added that more merger deals among regional carriers that are pressured by rising fuel costs and shrinking market share was a logical expectation.

"With United and Delta being so large and so dominant, it does put other smaller airlines -- like us, too, frankly -- in a position of at least thinking about how are we going to remain competitive," Kelly said.

Kelly said Southwest looked at entering the regional airline business but was not comfortable with the market size or economics of individual trips.

He said the AirTran purchase would allow Southwest to close a hole in its route map with entry to Atlanta. He added the acquisition would enable his company to grow in ways not possible without it.

"We have found a way to unlock our potential. That's what really excites me about the AirTran deal," Kelly said.

(Reuters)