Markets

American Pursues Low-Cost Carrier Partnership with WestJet

By Brett Snyder

Updated on: October 21, 2010 / 7:54 PM EDT / MoneyWatch

American Airlines (AMR) has been on a tear lately when it comes to creating unique partnerships. Apparently realizing that many of the legacy carriers are already tied up elsewhere, American has been cultivating relationships with low cost carriers. The latest is WestJet (WJA.TO), and though there's not much to the deal yet, there is bound to be more to come. This is a smart move.

For years, low cost carriers kept costs low by doing very basic things well and not much else. There was no codesharing, no participation in computer reservation systems, and sometimes, not even connections were allowed. But low cost carriers have evolved a lot over the years, and many have worked hard to be able to work together with other carriers. It adds complexity, but as the low cost carriers found, that complexity was worth the revenue opportunity.

But just because low cost carriers started to develop these capabilities, it didn't mean that the legacy carriers wanted to partner with them. That view has softened over time, but nobody is leading the charge like American. It's rare to see American leading anything, so this is certainly something worth watching.

In recent months, American announced its interline and slot swap agreement with JetBlue (JBLU). It also has decided to codeshare with Air Berlin as it works toward entering the oneworld alliance. Now, American will interline with WestJet. Interlining isn't a big deal in itself, but it does show American's interest in partnering in unconventional ways and there will be more to come.

If two airlines have an interline agreement, it means that a single ticket can be issued for flights on both airlines. It's pretty standard in this industry between established airlines. That's how you can buy a ticket between two airlines online or from a travel agent. You can also check bags all the way through. So it is important, even if it's not something that travelers would really notice in general.

This agreement so far only lets American take passengers to Canada and then put them on WestJet flights within Canada. Soon, the airlines expect to be able to put WestJet passengers to the US on to American flights south of the border. Eventually, this will probably turn into more than that, maybe codesharing.

For WestJet it's a milestone. Originally, WestJet was going to partner with Southwest (LUV), but that fell apart when WestJet started looking at Delta (DAL) as an additional partner. Southwest didn't want other partners involved with WestJet. But the Delta deal fell apart as well when the planned swap of slots with Delta in New York was shot down by the feds.

So now, WestJet has something in place with a major US airline but I imagine it's going to be the first of many with other airlines in terms of basic interline agreements. This could, however, give American a head start in terms of getting WestJet as a codeshare partner with possible entry into oneworld at a later date. It's a good move.

American has shown some real initiative in dealing with low cost carriers because there just aren't any other partners left. With United and Delta now fat and happy after their mergers with other legacy airlines, American doesn't have any good options along those lines. So, it has to get creative, and this is creative. In the long run, it should serve the airline well in its bid to provide a global network for its customers. It's just doing it in a very different way than the others.

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