SOMBA K'E/YELLOWKNIFE - In the midst of a recession and increased competition from southern carriers, Northern airlines are relying on niche markets to stay alive.

The NWT's two large commercial airlines, Canadian North and First Air, could be facing sunnier prospects this year because of new business ventures. Canadian North just signed a lucrative five-year contract with Imperial Oil to fly workers in and out of the Alberta oil sands and First Air recently announced it would expand its routes to the Kivalliq region of Nunavut.

"It is a sign of optimism, a good news story, in an otherwise bleak landscape, I would say," said Chris Ferris, vice president of marketing and sales for First Air. "It's the first sign we're seeing of potential recovery in the resource sector,"

"We're starting service over there because we think there's an opportunity to grow our business and service more of the Nunavut constituents," he added. "That's the first thing and then as we move through this year and hopefully see some more signs of recovery in the economy, we're taking a look at other opportunities to continue expanding."

Ferris said the greatest challenge to the continued operation of the airline comes from southern carriers that "have an entirely different cost structure, and because they're just dipping their toe in the water of the North, they can afford to do that."

Last spring, WestJet started a price war when it announced regular service to Yellowknife - offering introductory fares at a fraction of the other airlines' prices - and Air Canada ruffled some feathers in the Nunavut market in November when it announced daily flights from Iqaluit to Ottawa starting next month.

"We're cautiously optimistic and obviously we're taking some steps to come out the other side of this battle bigger and stronger as much as possible," Ferris said. "But we think there are some encouraging signs for a Northern carrier like ourselves. Our business is changing and you'll see expansion in the Kivalliq and perhaps some other service enhancements coming here in the near future but we still are going to be facing that challenge well into 2010."

The next five years, at least, are looking up for Canadian North. About 1/3 of the airline's revenue comes from charter flight contracts with major exploration companies including BHP Billiton, Ekati diamond mine, Rio Tinto's Diavik mine, and most recently a deal with Imperial Oil to supply aircraft for the industry giant's Kearl Lake extraction project until Dec. 31, 2014.

"These contracts are key to the future of the airline," said Steve Hankirk, vice president of operations, airports and charters for Canadian North.

"Whether you're an airline or a trucking company or whatever, if you've got a very large contract that you've got locked for five years, it just strengthens the whole business," Hankirk added.

The competition's going to be there from WestJet and Air Canada, but what it does is it gives us a niche market that we can still deploy our resources in so overall it just helps the company."