advertisement UPDATE 3-Canada's Jetsgo grounds jets, strands thousands (Adds court filing, Ottawa, WestJet reaction, updates stock prices) By Robert Melnbardis MONTREAL, March 11 (Reuters) - Discount airline Jetsgo grounded its fleet and obtained court protection from creditors on Friday, stranding 17,000 passengers during the March break school holidays, one of the busiest travel periods of the year in Canada. In a court affidavit, Montreal-based Jetsgo, which has 1,200 employees and is the country's third-largest airline, said it lost about C$55 million ($49 million) over the past 8 months, on top of a C$9.6 million loss in the year to June 27, 2004. Jetsgo said it had a negative net worth of about C$19 million and its business was no longer viable because air fares were well below cost. The privately held company was already under scrutiny from Canadian regulators because of safety and operational concerns -- Transport Canada this week gave the airline 30 days to rectify problems. In February it had restricted the airline to flying no higher than 28,000 feet, which adds to fuel costs. "They'd grown too fast and it was putting strains on senior management," said a spokeswoman for the transport department. Jetsgo, which began flying in mid 2002 and immediately launched a domestic fare war, said it decided to ground its fleet of 29 jets because it could not ensure reliable operations, even to repatriate stranded passengers. Jetsgo's woes, which it blamed in large part on a "coordinated attack" on its business by no-frills carrier WestJet Airlines Ltd. (WJA.TO: Quote, Profile, Research) , electrified the shares of its Canadian airline rivals. WestJet shares surged 50 percent before settling on Friday afternoon at C$15.45, up C$4.28 or 38 percent. Shares of ACE Aviation Holdings Inc. (ACErv.TO: Quote, Profile, Research) , the parent of Air Canada, the country's dominant airline, were up C$3.62 or 11 percent at C$35.87. Analysts said the grounding of Jetsgo, which accounted for about 10 percent of the Canadian domestic airline market, would mainly benefit Calgary-based WestJet. Jetsgo had recently made incursions into WestJet's western Canada stronghold. "We view the demise of Jetsgo as a positive for WestJet and think the shares will respond accordingly," said Merrill Lynch analyst Michael Linenberg in a research report that raised his rating on WestJet stock to "buy" from "neutral." WESTJET CEO EXPECTED JETSGO DEMISE Clive Beddoe, chief executive of WestJet, said he had been expecting the demise of Jetsgo, which is owned and operated by Montreal businessman Michel Leblanc. "Mr. Leblanc told me to my face that what he was going to do was undercut every fare we had until he filled his airplanes," Beddoe told reporters in Calgary. "Well, I hate to say that that's not a very good business model that works." At Jetsgo's two key hubs in Toronto and Montreal, its kiosks and counters were abandoned. "Where are the executives? They should be here to explain. They should be accountable," said Toronto traveler Craig Baumgartner, who was on his way to New Brunswick. Jetsgo's Web site, through which it booked most of its ticket sales, took reservations as late as Thursday night. It was not working on Friday. In a statement, Leblanc, who has founded or operated three other now defunct airlines in Canada, advised passengers to contact their travel agent or an alternative airline. The Consumers' Association of Canada said the government had failed to protect those who bought tickets on the airline. "Jetsgo couldn't have picked a better time for themselves to pull the plug -- at the start of one of the busiest travel periods when they have received funds from all of those people who will receive nothing in return except disappointment, frayed nerves and more expense," said association vice-president Mel Fruitman. Mastercard and VISA promised to reimburse cardholders who purchased Jetsgo tickets but were unable to fly. Air Canada said it was deploying larger aircraft on a number of domestic flights. WestJet offered stranded Jetsgo passengers special lower-priced fares and said it would delay plans to retire 18 older aircraft. (Additional reporting by Randall Palmer in Ottawa, Jeff Jones in Calgary, Blaise Robinson and Stefanie Kranjec in Toronto) ($1=$1.20 Canadian)
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Jetsgo, Canada's third largest airline, has ceased all operations because of spiralling oil prices and a federal safety investigation. 

The low-cost carrier had been expanding rapidly in recent months, having added four new routes in December alone. However, the sharp increase in oil prices has forced the airline to ground all flights. The airline, which has 1,200 employees and 29 planes, lost C$55 million (US$49 million) in the past 8 months alone.

The move has stranded over 17,000 passengers across its routes. A spokesperson from Canada's transport department commented, "They'd grown too fast and it was putting strains on senior management."

No arrangements were made with Air Canada or other airlines to take care of their customers. The Air Canada web site stated that "no arrangements were made by Jetsgo that would enable Air Canada to accept Jetsgo tickets."