Zip, a discount division of Air Canada, is headed for the hangar, as the mainline carrier takes over its routes and most of its employees.

The low-fare carrier that served Western Canada since September 2002 has been shut down, the Calgary Herald reported Wednesday.

Zip's 12 neon-coloured aircraft will be parked in Vancouver before being turned back over to their lessors.

Most of Zip's 400 employees have been transferred to Air Canada. About 55 management and non-unionized staff have been reassigned or been offered severance packages.

Zip's short-haul routes have also been reintegrated back into the schedule of Air Canada, which is due to get out of creditor protection at the end of September.

When it launched two years ago, Zip was billed as a low-cost competitor to WestJet Airlines. Zip's staff were paid less than employees at Air Canada.

Tango, Air Canada's long-haul discount division, ceased to operate a year ago. The Tango name still exists as a group of reduced fares at Air Canada.