Canada 3000, the country's second-largest airline, grounded all its flights on Friday, stranding thousands of passengers at home and abroad and triggering the seizure of at least one aircraft.
The shock decision, announced at midnight, came hours after the airline won court protection from its creditors and told the public it could keep flying.
In scenes reminiscent of the collapse of Swissair and Belgium's Sabena, bewildered passengers wandered airports in in search of alternative travel arrangements.
Canada 3000, like other airlines, had suffered from a sharp decline in already weak ticket sales as passengers canceled travel plans after the Sept. 11 attacks in the US. It grounded planes after unions rejected its bid to cut staff and jobs.
"Our aircraft are being seized and without aircraft you can't operate. We have our aircraft back in Canada, and we're doing our best to try and regroup and see where we're at right now," said Canada 3000 spokeswoman Angela Saclamacis.
She said airline's board of directors was meeting and looking for ways to keep operating.
That was little consolation to passengers seeking alternative flights at Toronto's Pearson International Airport. Canada 3000 ticket desks were staffed, but crews checked no luggage and sold no tickets.
"We've been to three different terminals trying to find another way out, but they are not telling us anything," said Loggia Presnail from Toronto, who had been heading for Fort Lauderdale, Florida, for a short winter break.
"There's no answer, no alternatives, no nothing. The flights are C$1,000 one way, so they are monopolizing on the fact that people cannot get out of here."
In Ottawa, senior opposition politicians accused Transport Minister David Collenette of incompetence and at least one demanded that he step down, with the government's policy to encourage competition seemingly in tatters.
The transport minister said the ailing carrier told him it could still be possible to resume operations.
But the prospect of a speedy return to the skies seemed to dim after the airport in St. John's, Newfoundland, seized a Canada 3000 plane because of unpaid fees.
A St John's International Airport Authority official said the Supreme Court of Newfoundland and Labrador granted it the right to seize the 737 jet because creditor protection was granted on the assumption the airline would keep operating.
There were no confirmed reports of other seizures. Two Florida airports the airline flies to said Canada 3000 had no planes on the ground there.
Canada 3000's rivals, ranging from Air Transat to Via Rail said they would increase capacity to help stranded passengers. And No. 1 carrier Air Canada said it was slashing some fares for stranded Canada 3000 passengers. But even while offering discounts, Air Canada denied a charge by the country's antitrust watchdog that it used its Tango low-fare service to hasten Canada 3000's demise.
Before Canada 3000 stopped operations, the Bureau of Competition Policy had planned to hit Air Canada with an order on Friday to stop Tango because it was a "fighting brand."
Partly due to fierce competition, Canada 3000 had sought job cuts and other cost reductions this week as part of a restructuring plan needed to win C$75 million (US$47 million) in federal loan guarantees.
It won protection from creditors on Thursday after the failure of a marathon negotiating session with pilots and flight attendants. It said this would let it "continue serving the traveling public" while restructuring its operations.
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