The failure of Canada's second-largest airline has raised questions about who will replace it, and what to do about Air Canada's sudden surge to 80% of the domestic market.

Trustees for Canada 3000, which grounded itself and sought court protection in November, have given up hope of selling the airline as a going concern. Instead, its assets will be sold piecemeal. A preliminary report shows that liabilities exceed assets by C$143 million ($90 million). However, the airline's main problem was liquidity. Leasing its entire fleet and losing C$700,000 per day, Canada 3000 ran out of cash.

The carrier's woes pre-date 11 September. Absorbing Royal Aviation and CanJet proved harder than expected. Its shift from charter to more scheduled operations was also difficult. It was also squeezed between full-service Air Canada and low-fare WestJet. Losses mounted when Air Canada launched Tango, its own low-fare unit, on routes overlapping Canada 3000's.

Besides Air Canada's leap in market share, charter carriers have benefited from Canada 3000's demise. Skyservice, which launched the short-lived RootsAir last year, has hired former Canada 3000 cockpit and cabin crews to boost its charters. Ottawa is pondering whether to grant temporary fifth freedoms to a UK charter so it can carry Canadians who booked with its affiliate tour company.

The two leading contenders to fill Canada 3000's vacuum in scheduled service are Angus Kinnear, the carrier's former president, and Michel Leblanc, the former chairman of Royal Aviation. Both have plans to launch smaller airlines in eastern Canada, and both hope to take over leases on Canada 3000 aircraft. WestJet also might expand its eastern Canada network, but at a more deliberate pace.

Transport minister David Collenette has become outspoken in his concern over Air Canada's domestic dominance. He is proposing amendments to tighten competition law, claiming that tougher controls are needed to attract investors for start-ups. He told a parliamentary committee that Air Canada's 80% market-share is "simply untenable".

In his most pointed warning, Collenette told Air Canada not to launch its proposed low-fare arm in western Canada, home of WestJet. Air Canada should focus on fixing its own problems, Collenette claims, rather than trying to take market share from its remaining rivals. Air Canada has responded by declaring its enlarged market share "a curse" thrust upon it by Canada 3000's collapse. "It sets us up as a target and everybody's favourite whipping boy," said the carrier.

Source: Airline Business