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Zoom Airlines bankruptcy unlikely to be contagious, say industry analysts |
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Written by Ross Marowits, THE CANADIAN PRESS
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Friday, 29 August 2008 |
A Zoom airline plane sits on the tarmac at Glasgow Airport Friday Aug . 29, 2008, after flights were suspended on Thursday. THE ASSOCIATED PRESS/David Cheskin/PA
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MONTREAL - Canada's airlines are being pummelled by high fuel costs and a weakened economy, but industry observers don't expect the demise of Zoom Airlines will be contagious.
"I hope not, but you never know," says George Gideon, general manager of G.G. Tours, the largest tour operator for Zoom.
Like others in the industry, the Toronto-based company said it was caught completely off guard when Zoom suddenly stopped operations this week and sought court protection in Canada and the Britain.
G.G. Tours is working to line up charter flights between Toronto and Caribbean destinations to transport more than 2,000 stranded people home.
Flights have been arranged Saturday to and from Jamaica, followed on Tuesday by service with Guyana and Trinidad. But the lack of available planes is making the effort harder as G.G. Tours struggles to survive.
"For us, it's devastating," said Gideon, who declined to indicate the financial hit the company faces.
Tour operators have faced similar challenges over the past 10 to 15 years as a string of Canadian airlines have gone bust.
They include Montreal-based Jetsgo stopped flying with little or no warning at the beginning of the busy March break travel period in 2005. A few years earlier, Canada 3000 abruptly stopped flying in November 2001.
"There'll be another one undoubtedly in the next couple of years. But I also think we'll see some new ones starting up as well, almost against common sense," says Karl Moore, a professor at McGill University's Desautels Faculty of Management.
While the Zoom's founders blamed the airline's demise on soaring fuel prices and a slowing economy, Research Capital analyst Jacques Kavafian said the main cause was a weak business model that relied mainly on offering cheap fares.
"I know that everyone wants to jump on the bandwagon because of oil prices," Kavafian said in an interview. "I don't buy that because I can name two dozen airlines that have gone bankrupt in Canada when oil was $20."
Despite the challenges that face the industry, Kavafian said Canada's large players, Air Canada (TSX:AC.B), WestJet (TSX:WJA) and charter carrier Transat (TSX:TRZ.B), are sufficiently well-capitalized to withstand the threats and may actually slightly benefit from the loss of a small competitor.
Toronto-based Porter Airlines is also in strong shape because of the fuel-efficient Bombardier (TSX:BBD.B) Q400 turboprops it flies, he said.
Smaller regional airlines such as Bearskin and Air Creebec are insulated by the regulated environment in which they operate. They charge higher fares to remote areas and benefit from government contracts for postal and emergency medical service.
Kavafian said the most likely companies to be threatened are charter companies Sunwing, which services southern hot spots, and Flyglobespan, a U.K. discount operator.
"The only attraction they've got is price and price is the easiest thing to copy," said Kavafian.
Neither company could be reached for comment.
According to the International Air Transport Association, 24 airlines around the world were grounded in the first half of the year.
Joseph D'Cruz of the Rotman School of Management at the University of Toronto said carriers in the United States, eastern Europe and India face a greater risk of failure than those operating in Canada.
"There's not many weak airlines left in Canada," he said.
Meanwhile, most Zoom passengers who purchased flights on Zoom will likely recover the money they've spent.
MasterCard, Visa and other credit card companies said those who purchased tickets using their cards typically are entitled to refunds. Those who purchased through registered travel agencies and online websites may also be insured against supplier default in Quebec, British Columbia and Ontario.
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Last Updated ( Friday, 29 August 2008 )
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