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WestJet Airlines Ltd. has suffered a setback in its ambitious plans to expand its footprint in the United States, after Southwest Airlines Co. placed their much-touted partnership deal on hold.

A Southwest spokeswoman said given the recession, the carrier now considers the pact a low priority. Brandy King said the Dallas-based carrier may delay implementation of the code-sharing arrangement until late 2010 – at least one year behind schedule.

Under the deal announced last July, the two carriers would sell more tickets on each other's planes, as well as co-operate on connecting flights, baggage handling and electronic ticketing.

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The delay comes as Canada's two largest carriers, Air Canada and WestJet, scramble to fill seats as they get battered by the recession and face a variety of headwinds delaying their path to recovery.

WestJet is looking to double its seat capacity between Canada and the United States. It currently has a market share of 10 per cent, and the deal with Southwest is a crucial element in WestJet's growth strategy.

WestJet has also signed international partnership deals with Air France and KLM to help increase the number of connecting passengers.

Hugh Dunleavy, WestJet's executive vice-president of commercial distribution, said Calgary-based WestJet remains committed to expanding in the United States, where it has flown since 2004.

He played down the Southwest delay, calling it a "small hiccup." On the European front, co-operation is slated to begin in July with Air France and KLM on "interline" arrangements that cover baggage handling and electronic ticketing on inbound flights, Mr. Dunleavy added.

WestJet also intends to launch its frequent-flier program by the end of 2009, accompanied by the introduction of loyalty credit cards to compete against CIBC Aerogold Visa and American Express AeroplanPlus cards.

But first, WestJet needs to get the Sabre computer reservations system installed and integrated to handle new functions.

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"[Information technology]problems get swept under the rug, but they're hugely important. They've become real universal challenges for the airline industry dealing with their reservation systems," said Raymond James analyst Ben Cherniavsky.

At Air Canada, a Web-based computer reservations system, known as Polaris, is proving to be "less robust" than anticipated as it undergoes development, prompting an internal review of Polaris's viability, said an industry official.

But cash-strapped Air Canada caught a break Monday, saying it has reached an agreement on credit card processing that reduces the carrier's minimum cash balance required at month's end to $800-million instead of up to $1.3-billion.

Industry experts say WestJet and Air Canada are lowering airfares to entice recession-weary consumers while watching fuel bills climb, adding to the list of woes that include WestJet's delayed U.S. expansion and Air Canada's $2.85-billion pension solvency deficit.

The country's two largest airlines won't likely see travel demand rebounding until the first quarter of next year, given that air traffic is traditionally a lagging indicator of an economic revival, observers say.

Cheaper airfares have failed to stimulate a rush back to the skies as many leisure travellers continue to scale back trips during the recession and corporations remain in belt-tightening mode.

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Many Canadians laid off from their jobs have cancelled holiday trips that they normally take once or twice a year, while those still working are devoting more attention to saving money for a rainy day instead of splurging on vacations, according to airline watchers.

"The airlines are concerned about getting past the summer peak and making a reasonable amount of money because this fall will be quite tough. We may not see a substantive recovery by the carriers until Q1 of 2010," said Robert Kokonis, president of airline consulting firm AirTrav Inc.

WestJet promoted seat sales recently to help reduce empty seats in its single-class economy cabins, while Montreal-based Air Canada has been chopping fares in economy and business class.

Air Canada is even discounting its "executive first" service to Europe, featuring lie-flat beds.

Mr. Kokonis said summer fares are generally higher than spring ticket prices, but compared with the summer of 2008, this July and August will feature some relative bargains domestically.

A survey by investment dealer Raymond James Ltd. shows that domestic airfares have fallen sharply for six-week advance bookings for the lowest-available-fare categories.

The Raymond James airfare index reveals that a WestJet basket of ticket prices, booked May 15 for late June travel, fell 43 per cent year over year. The index declined 40 per cent in the mid-May survey of selected Air Canada routes.

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About the Author

Brent Jang is a business reporter in The Globe and Mail’s Vancouver bureau. He joined the Globe in 1995. His former positions include transportation reporter in Toronto, energy correspondent in Calgary and Western columnist for Report on Business. He holds a Bachelor of Commerce degree from the University of Alberta, where he served as Editor-in-Chief of The Gateway student newspaper. Mr. More

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