ATA Airlines on Thursday cancelled all its flights, fired most of its 2,230 employees and filed for bankruptcy protection, becoming the latest casualty in a US commercial-aviation industry buffeted by record fuel costs, competition and ebbing demand.

ATA also blamed its demise on FedEx, which pulled the carrier from an agreement to transport US military personnel and their families internationally. The airlift contract comprised most of ATA’s charter business.

The shutdown dealt a blow to Southwest Airlines, which had reached a 2005 code-sharing agreement with ATA that allowed each carrier to book passengers on the other’s flights. Southwest had viewed the carrier as a springboard to its first international offerings.

With the bankruptcy protection filing, the Indianapolis-based carrier’s second in the past four years, ATA joined Hawaii’s Aloha Airgroup in ending services amid soaring fuel prices. The rises have ended the US airline industry’s modest recovery from its last downturn that followed the September 2001 terrorist attacks.

Founded in 1973, ATA was once the nation’s biggest charter carrier. The company built a presence at Chicago’s Midway Airport serving domestic destinations and vacation spots such as Cancun, Mexico, and Hawaii. The carrier filed for Chapter 11 protection in 2004, emerging two years later.

A unit of Global Aero Logistics since last year, ATA slashed its flight schedule last month to cut costs and, at the time of its shutdown, was serving 10,000 passengers daily with 29 aircraft, many of which are leased.

Southwest, which had planned to use ATA’s flights to Mexico and the Caribbean to offer passengers international destinations, said it would look for a new partner.

ATA’s troubles came as Southwest drew scrutiny in Washington on Thursday from members of Congress for the carrier’s recent safety-inspection violations and allegations of improper relationships with federal aviation officials.

Spurred by an ongoing US House committee investigation, the Federal Aviation Administration last month ordered Southwest to pay a record fine of $10.2m for continuing to fly more than 100 aircraft that had missed inspections.

“I fear that complacency may have set in at the highest levels of FAA management, reflecting a pendulum swing away from vigorous enforcement of compliance, toward a carrier-favourable, cozy relationship,” said James Oberstar, the Minnesota Democrat who chairs the committee.

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