CanJet Grounds Flights, Rivals May Cash In

September 5, 2006

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CanJet Airlines, a four-year-old company that tried to muscle business from Canada's two big carriers, said on Tuesday it is grounding its scheduled service, blaming high fuel costs, rising landing fees and stiff competition.

The move by CanJet, a unit of privately held IMP Group, leaves a gap in domestic flight services, especially in Atlantic Canada, and represents the latest in a series of failed attempts at establishing major discount carriers.

In the past decade, names such as Greyhound Airlines, Canada 3000 and Jetsgo have come and gone. The latter two shut down suddenly, stranding travelers throughout Canada and abroad.

Halifax, Nova Scotia-based CanJet, which has been flying to 14 Canadian and US cities with a fleet of 10 Boeing 737-500 jets, said it will offer new travel arrangements or refunds for anyone booked on its flights after September 10.

"Unfortunately, our airline, over the years, has been faced with many uncontrollable challenges within the industry including high fuel costs, continual increases to airport fees as well as increases in competitive capacity on our primary routes," Chief Operating Officer Julie Gossen said in a letter to customers posted on CanJet's web site.

The carrier plans to concentrate efforts on its charter business, Gossen said.

The airline had grabbed around 5 percent of Canada's domestic market, well below the shares of dominant carrier Air Canada and No. 2 player WestJet Airlines, analyst Cameron Doerksen of Versant Partners said.

But CanJet has played a large role in the Atlantic provinces, with scheduled service to Halifax; Moncton, New Brunswick; and Deer Lake and St. John's, Newfoundland, Doerksen said.

"It's certainly positive for the other two players. If you take capacity out of the market, the other two carriers will be there to either fill the void, or at least have a little more pricing power with one less player in that market," he said.

WestJet may have a bigger opportunity to wrest market share in that region, because it currently has a relatively small position there, he said.

WestJet vice-president Sean Durfy said his airline will examine how lucrative any expansion of services might be.

"One of the issues we have is that we've already put together our schedule for the fall and most of our aircraft have been allocated," he said.

"Now what we have to do is really look at whether we can reallocate capacity if necessary, and necessary being: is there an economic reason for us to do it? If that's the case we certainly would look at it."

WestJet will be able to accommodate some CanJet passengers affected by cancellations, Durfy said.

Air Canada and Jazz are also gauging demand for travel and will adjust their capacity based on that study, spokeswoman Angela Mah said.

Canada's airlines, like their peers around the world, have struggled with high fuel costs in recent years.

The industry has also often been its own worst enemy as new firms entered the market and tried to lure passengers with cut-rate fares, which squeezed yields for all the players.

(Reuters)