Zoom bankruptcy highlights risks to airline customers

The sudden bankruptcy of the discount airline Zoom that left passengers stranded on both sides of the Atlantic highlights the insufficient protection offered to airline customers, a consumer advocate says.

People who bought tickets with Ottawa-based Zoom had no idea the company was in financial trouble before it suddenly shut down and began bankruptcy proceedings Thursday.

Mel Fruitman, vice-president of the Consumers' Association of Canada, said companies in such straits should be forced to disclose their situation and set aside money to ensure customers get a refund if the company goes belly up.

Now that the company has gone bankrupt, he said, there is no guarantee customers will be refunded for their useless tickets, since the nature of bankruptcy laws in Canada means corporate creditors get paid first when the assets of an insolvent company are divided.

"Consumers are way down at the bottom of the list, which is ridiculous as far as I'm concerned," Fruitman said.

Some customers can be reimbursed, including those who live in Ontario and booked through a travel agent because they are covered by a travel industry insurance fund, Fruitman said.

Those who book directly with the airline either online or by phone don't have that kind of coverage, though it's possible they may be covered by their credit card company, he said.

"But that's voluntary on their part," Fruitman said, adding that credit card companies could change their policies at any time.

Porter's strategy could succeed

Despite the failure of Zoom and the similar failure of Jetsgo, another small Canadian carrier, a few years ago, not all small airlines are as risky for customers, said Ian Lee, director of Carleton University's Sprott School of Business.

He said it is possible for a small carrier to succeed if it focuses on a niche market, as Porter Airlines does.

"Porter is going into the major urban centres — Ottawa, Toronto, Montreal —  and they're selling largely to the business class," he said, adding the airline's use of Toronto's downtown island airport instead of Pearson International Airport outside the city is a major selling point. "What Porter is selling is not low price like Zoom. Porter is selling convenience."

Westjet,  which once focused on discount flights, has grown to the point that it can no longer be considered a small airline with the accompanying risks, he said.

Lee said the current difficulties faced by small airlines likely mean consumers will face higher prices for plane tickets unless Canada deregulates the industry further and allows foreign airlines to compete on domestic routes.