Icelandair Will Fly A 160-Seat Boeing 737 MAX 8 From St. Louis To Reykjavik With Southwest Airlines Connections

Icelandair recently announced its latest long-haul destination. Starting in May 2027, the airline will connect its hub at Keflavik Airport (KEF) to St. Louis Lambert International Airport (STL) with nonstop flights for the summer season. This will be the airline's 16th destination in the US, but this route is particularly notable because it will also see the airline expand its partnership with Southwest Airlines to cover STL. This will certainly help the business case for Icelandair, but it also represents an increasing area of focus for Southwest.

Southwest Airlines and Icelandair are currently engaged in an interline agreement, which essentially allows the parties to sell tickets that include travel on the partner airline. Passengers get one ticket, and their baggage is handled to the final destination. This is ultimately the most basic form of airline cooperation, and Southwest has since established multiple interline agreements with foreign airlines. With Icelandair, however, the intent appears to be for the two carriers to expand on this partnership.

Icelandair's Next US Route

On October 7, Icelandair announced that it would begin operating a new nonstop route between KEF and STL, which will be its 16th route to the US. The route will operate only for the summer season, running from May 14 to October 24, 2027, and flights will depart KEF every Monday, Wednesday, Friday, and Saturday. Icelandair will be using the Boeing 737 MAX 8 on this route, configured to seat 16 passengers in Saga Premium and 144 passengers in economy, totaling 160 seats.

Icelandair first entered into an interline agreement with Southwest Airlines in 2025, and this partnership now covers Baltimore, Denver, Nashville, Orlando, Pittsburgh, Raleigh-Durham, and now St. Louis. Using the new STL flight as an example, this agreement allows Southwest to sell connecting tickets that include the Icelandair service on one end, while it also allows Icelandair to sell passengers itineraries that include a Southwest flight out of STL. This helps fill up Southwest's domestic flights out of STL and the new Icelandair service.

This route is also notable for being the third transatlantic route to STL. The airport currently has service to London Heathrow Airport (LHR) by British Airways and to Frankfurt Airport (FRA) by Lufthansa. STL hasn't been a major hub since 2009, and the market has also been in decline, which makes the recent transatlantic additions quite notable. Lufthansa began flying to STL in 2022, and Icelandair will now join these two airlines in connecting St. Louis to Europe.

Icelandair's Market Positioning

Iceland's location enables its national flag carrier to serve almost the entire US with narrowbody aircraft while also being ideally positioned for flights to Europe. As such, most of Icelandair's business comes from selling tickets between the US and Europe via KEF at fairly affordable prices, enabled by its low operating costs. In part, the airline's low operating costs come from the use of narrowbodies (Icelandair only has a handful of 767s) and the modest flight distances on its US routes.

Icelandair is famous for its extensive use of Boeing 757s across the Atlantic, but the carrier has significantly cut down its 757 fleet in favor of the 737 MAX and the Airbus A321LR. With the 160-seat 737 MAX 8 that the airline will fly to St. Louis, the carrier has to fill a small number of seats compared to a widebody, while operating costs are significantly lower than those of a 757. It makes routes such as these commercially viable, whereas it wouldn't have been possible with older aircraft types.

The other half of what makes Icelandair appealing is the European network. The carrier has been expanding its European services, including resuming services to Madrid in April 2027 after they were suspended in 2024. While Icelandair isn't usurping the US legacies or the major European airlines, it owns its home market and continues to gradually grow its network on both sides of Iceland.

Icelandair's US Network

Icelandair doesn't carry a huge number of passengers to the US because it primarily uses smaller narrowbody aircraft. In terms of network size, however, Icelandair is one of the top European airlines in this market. It serves more destinations in the US than KLM, Turkish Airlines, or Virgin Atlantic, and it's doing so without being a member of a major airline alliance. The airline is unaffiliated with IAG, Air France-KLM, or Lufthansa Group, and it instead has to rely on its own partnerships for additional feed.

In 2025, the airline added Miami as a winter seasonal route and Nashville to its US network, while 2024 saw it add service to Pittsburgh. For the 2026 summer season, the carrier also served Baltimore, Boston, Chicago, Denver, Detroit, Minneapolis, Newark, New York JFK, Orlando, Portland, Raleigh-Durham, Seattle, and Washington Dulles. In addition, Icelandair has been boosting its European network, increasing feed on both ends.

The Boeing 757-200 was instrumental in helping Icelandair become a connecting airline for travel between North America and Europe, but the carrier has retired most of its 757s. The carrier has acquired 17 Boeing 737 MAX 8s to slot underneath the 757s, along with a small fleet of 737 MAX 9s. Meanwhile, Icelandair has also ordered the Airbus A321LR and A321XLR to fully take over the role of the 757. These planes are also replacing the airline's Boeing 767s.

Southwest Airlines And International Growth

Southwest Airlines has traditionally focused on short-haul flights within North America, and its current agreement with Icelandair was its first partnership with a foreign airline in recent years. Southwest has pivoted its business model to boost revenue and adapt to changing market conditions, as the US airline industry is very different from what it was even in 2019, and Southwest, in its prior form, had fallen behind. Today, one area where the airline is focusing heavily is customer loyalty, and the partnerships are well suited to that.

In the past, a Southwest Rapid Rewards member traveling to Europe had no option but to go with another airline. With agreements like the one with Icelandair, Southwest Airlines can send its loyal customers to European and Asian markets on one ticket. These agreements are quite limited thus far in terms of collaboration and customer benefits, but it's still much better than not being able to sell tickets to these markets. This is especially important today given how popular long-haul travel has become, and it builds customer loyalty.

Despite the limited scope of the partnerships, they can be looked at as a starting point for Southwest. The Icelandair partnership in particular has been expanded to cover more cities, and it's become abundantly clear that this is part of the carrier's future. Meanwhile, there has also been speculation that Southwest could start its own flights to KEF, presumably with the 737 MAX 8, although a formal route announcement has not been made. Still, the airline is increasingly looking abroad for its future ambitions.

Southwest's Renewed Push Towards Customer Loyalty

Making money as an airline has always been difficult, but the most profitable US airlines (Delta Air Lines and United Airlines) have found tremendous success with their loyalty programs in particular. SkyMiles and MileagePlus already operate with excellent margins, but customers are also joining these programs and applying for co-branded credit cards at an increased rate. Part of the reason why this has worked so well is that these programs and credit cards offer desirable benefits in today's market.

While Southwest has a competitive domestic network along with good service, it has historically lacked premium seating options. The airline still lacks power ports on some aircraft, while its onboard Wi-Fi is also far from the strongest. In addition, Southwest doesn't operate any long-distance flights to popular destinations abroad.

Therefore, potential customers can either commit to Southwest or to an airline like Delta that offers more onboard amenities, multiple premium seating products, an extensive global network, and a significant network of partner airlines worldwide. While Southwest is still a solid choice, becoming a United frequent flyer offers a wider range of perks, and the nature of these airlines' operations appeals to a larger group of customers than a domestic airline flying all-economy 737s.

Southwest, however, has greater ambitions than simply being another budget airline within the US. While it started out as a low-cost carrier, it effectively operates as a hybrid airline today, and its recent strategic shifts have all emulated what the legacy carriers are doing. Southwest now offers extra legroom seats and has partnerships with foreign airlines, while it's also planning a new premium credit card, a lounge network, as well as potentially a true domestic first class product. All of this is in the name of moving upmarket to increase customer loyalty.