Jazz Air signs C$100 million deal with Thomas Cook

VANCOUVER, British Columbia (Reuters) - Jazz Air LP will start flying to sun destinations for tour operator Thomas Cook Canada later this year, it said on Monday, after signing a deal that it expects will add C$100 million ($100 million) a year to its revenues.

The deal sees Jazz spreading its wings significantly for the first time beyond Air Canada, which until now has been responsible for 99 percent of the regional carrier’s revenue.

Jazz’s stock was up 9 Canadian cents, or 2 percent, at C$4.58.rose on Monday on the Toronto Stock Exchange.

“Any revenue diversification outside of Air Canada is a positive. They have talked about doing it for a while,” said RBC Capital Markets analyst Walter Spracklin.

From November, pending regulatory approvals, Jazz will start flying six or more Boeing 757-200 aircraft to the Caribbean, Mexico and Central America on behalf of Thomas Cook tour operator Sunquest Vacations.

The aircraft will be leased to Jazz by Thomas Cook Airlines. Jazz will supply the pilots and crews.

The deal will initially cover the winter 2010-11 vacation season but may be extended for up to five years with Jazz eventually operating a fleet of 11 jets for Thomas Cook.

Operating 11 aircraft, the deal could be worth C$180 million a year to Jazz, Spracklin said. That is equivalent to about 13 percent of Jazz’s current annual revenue of C$1.4 billion.

“Growing and diversifying our business remains a top corporate priority,” Joseph Randell, Jazz’s chief executive, said in a statement.

The charter routes were previously flown by privately owned Skyservice Airlines, Thomas Cook spokeswoman Jill Wykes said.

Skyservice took travelers by surprise last week when it announced it was shutting its doors because it could no longer operate profitably in Canada’s vacation tour market because of heightened competition and a heavy debt load.

Jazz flies lower-density and off-peak routes for Air Canada across Canada and into the United States under a capacity purchase agreement. It also operates a tiny charter service transporting groups to venues such as fishing camps.

Jazz used to be owned by Air Canada and its parent ACE Aviation Holdings Inc. It launched an initial public offering in 2006 and is now an independent business.

($1=$1.003 Canadian)

Editing by Peter Galloway; editing by Peter Galloway