Southwest Adds Airline Partnerships, Starting With Icelandair

Southwest Airlines is currently undergoing a major transformation, as the airline looks to improve its financial performance. This includes introducing assigned & premium seating, adding redeye flights to the schedule, and more.

In September 2024, the airline announced plans to introduce airline partnerships, which represents a major shift from the carrier’s old way of doing business. There’s now an update, as the first airline partnership has just been launched.

Southwest & Icelandair launch interline partnership

Southwest Airlines plans to progressively introduce new airline partnerships, with the first one now being live. This is intended to connect customers with more global destinations, and to generate additional demand for travel across the Southwest network.

Icelandair is Southwest’s first airline partner, and the partnership has just gone live. Southwest is really starting slow, as initially this is an interline agreement between the two airlines:

• The partnership has launched as of mid-February 2025, initially covering flights through Baltimore (BWI)
• The next gateways for this partnership are expected to be Denver (DEN) and Nashville (BNA), though there’s no exact date for that launch yet
• Initially, it’s just possible to book tickets as part of this agreement through Icelandair’s website, and not through Southwest’s website
• Once Southwest introduces assigned seating, it’ll also be possible to book itineraries including travel on both airlines through Southwest (currently Southwest lacks the technology)
• Eventually there should be frequent flyer reciprocity, allowing Rapid Rewards members to earn and redeem points, but there’s no timeline for that yet

Just as an example of this partnership now being live, I just went to Icelandair’s website, searching an itinerary from Tampa to Keflavik. There are several connecting options, with one of those being through Baltimore, with the first segment on Southwest.

As you can see, this is a very basic level of cooperation. An interline agreement just allows tickets to easily be booked across two airlines. We’re not even talking about a codeshare agreement, or anything like that. But still, it’s major progress for Southwest, which has historically not done much in the way of partnerships.

Southwest is expected to introduce at least one other airline partnership within the next year, though details about that aren’t yet known. To state the obvious, I think it’s a sure bet that Southwest won’t be trying to join one of the global alliances, and won’t be partnering with any major US airline. Clearly this is just about generating additional demand at long haul gateways.

I’d imagine that Southwest may take a similar approach to Alaska Airlines, before it joined oneworld. The carrier partnered with all kinds of long haul airlines offering service to the West Coast, so maybe Southwest can do something similar for airports on the East Coast. It seems that airlines like Condor would be a good fit, though they have limited airports where they overlap.

Southwest is a massive airline, but up until this point, hasn’t offered any airline partnerships, so this is a pretty major development. Interestingly, around two years ago, Southwest had a job posting for the position of “Senior Manager Airline Partnerships.” So it’s clear that this is something that Southwest has been working toward for some time.

Here’s how Icelandair Chief Commercial Officer Tómas Ingason describes this:

“We are very excited to have formalized our partnership with Southwest and honored to be chosen as Southwest’s first airline partner. The partnership will open new and exciting connections for our customers onwards with Southwest to numerous destinations in North America, and at the same time, their customers will benefit from our extensive connections to Iceland and Europe. We welcome Southwest to our strong partnership portfolio in the US and ever-growing group of partner airlines and look forward to working together in offering our customers smooth and enjoyable travel experiences.”

Meanwhile here’s how Southwest EVP and Chief Transformation officer Ryan Green describes this:

“It’s fitting for us to launch this chapter of industry-standard airline partnerships with our longtime friends, Icelandair. Beyond an ability to offer each other’s Customers access to new destinations and like-minded travel experiences centered around hospitality and value, we’re grateful to have been guided by their expertise and best practices in building our program.”

This isn’t going to be some goldmine for Southwest

I suppose it makes sense for Southwest to partner with some global airlines, but I don’t think this will materially change the carrier’s financials for the better. There are two major issues here.

The first issue is that this kind of traffic generally isn’t very high yield, based on how revenue is split. I mean, a transatlantic Icelandair economy ticket might cost $500, and Southwest would be getting a small percentage of that revenue.

The way these agreements are structured differs, but the airline might be getting revenue based on the percentage of the total trip distance it carries a passenger. You can bet that these tickets connecting to global partners won’t have the same revenue per segment as if Southwest sold the seats directly. But it’s a way to sell seats, and an occupied seat is better than an empty seat, especially since Southwest is unlikely to cannibalize its own business this way.

The other general challenge here is that Southwest’s fare types just aren’t very compatible with those of other airlines. For example, Southwest includes two free checked bags on all fares (and this policy will continue), which is a way more generous policy than with most other airlines.

So I’m curious how this will work in the context of these partnerships, when Southwest passengers are connecting to an airline that doesn’t allow any free checked bags, or maybe allows one free checked bag, on a particular fare.

Bottom line

Southwest Airlines is launching airline partnerships as of this year. Icelandair is Southwest’s first airline partner, and that partnership has just kicked off for connections in Baltimore (BWI), with Denver (DEN) and Nashville (BNA) expected to follow soon.

Ultimately it makes sense for Southwest to find more ways to fill seats, though this isn’t likely to be some cash cow for the airline, especially when you consider that Southwest tends to command more revenue per seat mile than most other carriers with these kinds of arrangements (given all that’s included with Southwest fares).

What do you make of Southwest launching airline partnerships?