ATA Airlines said Thursday it filed for Chapter 11 bankruptcy and discontinued all operations after the cancellation of a key military charter agreement.
The Indianapolis-based low cost airline and its rivals have also been hurt by big increases in jet fuel prices. ATA is the second airline to file for bankruptcy in the past few weeks.
The fuel price spike, coupled with a steadily weakening U.S. economy, has stalled the airline industry's modest recovery from the 2001-2006 downturn.
On Sunday, Hawaii-based Aloha Airlines said it would shut down its passenger operations less than two weeks after it filed for bankruptcy protection.
Big airlines are beginning to shrink to cope with much tougher operating conditions. On March 18, Delta Air Lines unveiled plans to cut 2,000 jobs and scale back flights.
Carriers have also moved to pass on fuel costs to travelers through higher fares and surcharges. Some airlines have opened new revenue streams by charging for products and services that previously had been included in the price of a ticket.
Oil prices , which are directly related to jet fuel costs, remain above $100 a barrel.
"ATA's scheduled service business had been severely impacted by the dramatic and unprecedented increase in the price of jet fuel in recent months," said ATA in a statement.
ATA operated 29 aircraft and served destinations that included Hawaii, Guadalajara, Cancun, Oakland, Chicago, Las Vegas and Dallas and had a code-share agreement with Southwest Airlines ATA said "virtually all" of its 2,230 staff have been told their jobs have been eliminated.
ATA said it spoke to numerous parties in unsuccessful efforts to obtain capital or sell the business as a going concern.
ATA said it was told recently by FedEx Corp that ATA would no longer be a member of a "teaming arrangement" that gave ATA a significant share of airlift contracts for transporting military personnel and their families to and from overseas destinations.
This arrangement had accounted for most of ATA's charter business.
The cancellation of the military contract "undermined ATA's plan to address the current conditions facing all scheduled service airlines, including the tremendous spike in the price of jet fuel in recent months," said Doug Yakola, chief operating officer of ATA.
ATA had emerged from Chapter 11 bankruptcy in 2006, according to the company's Web site. ATA is a subsidiary of Global Aero Logistics.
Global Aero and its other subsidiaries are not part of ATA's bankruptcy proceedings and are conducting business as usual.