I would absolutely *love* it if Southwest were to fly Canada routes, as I am constantly flying up to Toronto from the Washington, DC area. And fares are usually pretty ridiculous unless you get them on sale--I usually pay upwards of $250 R/T, but often fares are around $275-325. Who's got that kind of money?
If they were to do so, I could definitely see them starting service to Hamilton to start, then perhaps Calgary and Vancouver somewhere down the line. Initially, I think, they could run BWI-YHM, HPN-YHM, MHT-YHM and PVD-YHM to serve the high-density Washington, New York, and Boston regions. Perhaps even MDW-YHM, if they have enough room to expand at Midway.
The great thing about Southwest going into Canada would be that they would be able to take Air Canada to the woodshed with their low-fares...Given that there really isn't any serious competition on routes to Toronto (unless you want to fly through the American carriers' hubs, which often costs 2-3 hours more), AC has the market all to themselves right now. That's the cost of having a monopoly airline run your country--the high fares that inevitably restult! But Southwest would be able to compete with them in their own country on transborder runs.
There are some problems to bring up here, though. First, there's the issue of turning the aircraft around, something that people have brought up time and time again. Because of customs and other issues that Southwest doesn't have to face domestically, their quick turn time might be increased, leading to lower profitability. Second, there's the issue of increased fares due to fees associated with flying international runs. Who knows if these will be significant or not. Third, there's the issue of getting authority to fly into Canada, from both governments. Then, of course, there's the issue of having the ability to continue sensibly expanding in the United States like they always have, without taking on the risk of flying to a new country, where their brand recognition is lower. Maybe they do plan to go to Canada in the future, but are reserving such service until they've reached their potential in the U.S.
I think Southwest might do well to work with a ground transportation company in the Buffalo and Seattle areas to transport passengers across the border to the airport, from which they can fly WN with cheap fares. I could definitely see this, as there is no such link right now, and it would allow them to cheaply gain increased market share in these regions. But WN seems pretty bent on not expanding into Canada for the time being.
If you're looking for a low-fare connection between the U.S. and Canada, I'd bank on WestJet to get it done. They have begun setting up a base at Hamilton, and their CEO has made statements in the past about being interested in starting low-fare transborder service to such destinations as PIT and BWI. And I really hope they do get those services started sometime soon, because AC could really use some competition. Between flying for $100-$150 on a low-fare carrier and paying $250 to get Aeroplan miles, I think I know which one I'll choose.