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Passengers disembark an Air Canada Jazz flight after flying on a Canadair Regional Jet in Prince George from vancouver.

JOHN LEHMANN/John Lehmann/Globe and Mail

Jazz Air Income Fund is gearing up for the November launch of service to winter hot spots on behalf of Thomas Cook Canada, which previously chartered a Toronto company that filed for bankruptcy last spring.

The owner of Air Canada's regional affiliate Jazz Air LP says it has begun to hire more pilots for at least six Boeing 757-200 aircraft that will serve southern destinations through April. Flight crew training begins in September.

The exact number of new hires hasn't been determined. Some contract pilots will be added during the start-up stage while Jazz pilots are trained to fly the Boeings, which are larger than that other planes in Jazz's fleet.

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Thomas Cook, which had been a customer of Skyservice Airlines Inc., is expected to generate about $100-million in additional annual revenue for Jazz in the first two years.

Jazz will fly to the Caribbean, Mexico and Central America on behalf of Thomas Cook's tour operator Sunquest Vacations.

"Our employees, especially our flight crews are very excited about the Thomas Cook contract and serving new markets," president and chief executive officer Joe Randell said during a conference call about its second-quarter results.

In the quarter, higher fuel costs took a bite out of Jazz's profits.

The regional airline said it earned $15.6-million, or 13 cents per unit, for the three months ended June 30 compared with a profit of $25.4-million, or 21 cents per unit, a year ago.

Revenue totalled $359-million, down from $373.6-million as billable block hours decreased 4.9 per cent and its capacity fell 4.5 per cent to 1.34 million miles.

The Thomas Cook contract signed in April is part of Jazz's strategy to diversify its customer base. Its capacity purchase agreement with Air Canada was modified in response to uncertainty in the industry and the large national carrier's need to reduce costs.

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Jazz also invested $15.2-million to obtain a 33.3 per cent non-voting equity interest in Latin American Regional Aviation Holding Corp., which holds a 75 per cent stake in Pluna Airlines.

The costs for the startup of the Thomas Cook contract will be felt during the coming two quarters. But they should be lower than normal because Thomas Cook is providing the aircraft and the capital for the planes.

"While there will be costs, they will certainly be very reasonable when compared to the costs that operators would normally incur to get into this market segment," Mr. Randell told analysts.

Cameron Doerksen of Versant Partners expects the contract will generate operating profits equal to or better than its main service for Air Canada, but on a smaller scale.

"It's an important diversification of their business and the contract takes place in the winter, which is typically Jazz's weaker period of operations, so it helps smooth out their earnings and cash flow stream," Mr. Doerksen said in an interview.

As for the results, Mr. Doerksen said they were "fine."

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Operating income was a little higher than he had expected and costs were a little lower.

Meanwhile, Mr. Doerksen said new six-year labour contracts for pilots and flight attendants will result in higher costs but contain terms that should offset these increases. The CPA with Air Canada also includes labour cost escalations.

"Ultimately, we view the conclusion of these new contracts, especially the long-term nature of the deals with the key pilots and flight attendants unions, as positive for the company as it creates some cost certainty for an extended period," he wrote in a report.

Jazz operates scheduled passenger service on behalf of Air Canada with some 841 departures per weekday to 57 destinations in Canada, and 28 destinations in the United States.

It uses 123 aircraft but has ordered 15 Q400 turboprops from Bombardier Inc. a deal valued at $454-million (U.S.). Deliveries will begin next May. It also has options for 15 more planes.

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