The European economic crisis coupled with ferocious competition from Middle Eastern carriers has led Air Seychelles to shutter its long-haul operations. The airline plans to return early the Boeing 767s it has on lease from International Lease Finance Corp. (ILFC).

A long-term deal Air Seychelles and ILFC signed in 2006 for two leased, GEnx-powered Boeing 787-8s also appears to be dead.

The airline had a fleet of five Boeing 767s, but in October and November it returned its two 767-200s to ILFC. These two aircraft were primarily used for a contract with the U.K. Ministry of Defense to provide charter services from the U.K. to a British air base on the Falkland islands. Air Seychelles lost the contract in September.

The other 767s in the fleet, three -300ERs, were used for scheduled passenger service and are being returned early as a result of Air Seychelles’ decision to end all of its long-haul, widebody scheduled operations.

Air Seychelles’ online booking system shows that, effective Jan. 8, it will scrap its London Heathrow service via Milan and Rome, and that effective March 25, it will drop its flights to Paris Charles de Gaulle. Paris had been its main gateway into Europe from where it had codeshare arrangements with Air France to Madrid, Zurich and Frankfurt. But all that will be gone come late March.

The airline on Nov. 24 also stopped flying to Singapore, which means it no longer has any services to Asia-Pacific. Air Seychelles CEO Bram Steller says airline management recently visited China as part of a trade delegation led by Seychelles Transport and Energy Minister Joel Morgan. During the visit, the delegation met “with four airlines to discuss possibilities of Chinese airlines flying to Seychelles in collaboration with our national airline and opening up our islands as a holiday destination to Chinese nationals,” says Steller. For services to Europe, the Seychelles’ main source of tourists, the carrier plans to operate a Boeing 737-800 to Abu Dhabi and then place its code on Etihad Airways services to Europe and beyond. The airline also will have 737 services to South Africa, as well as domestic turboprop services within the Seychelles archipelago.

International traffic to the Seychelles has increased in recent years. Last year, international passenger arrivals to the Seychelles rose 11% to 174,529, according to figures from the Seychelles National Bureau of Statistics. But “Air Seychelles has seen its market share decrease continuously for the last few years. The result has been that profitability on the long-haul routes of Air Seychelles for more than two years has dwindled from marginally profitable to serious losses,” Steller told Seychelles newspaper The People.

He says after the airline lost the U.K. contract, the Seychelles government stepped in to prop up the airline financially, but this is unsustainable. Air Seychelles then decided to axe services to Europe after it became apparent that forward bookings were so weak, due to the European financial crisis, that projected losses would have been even worse than before, he adds.

Air Seychelles in recent years has lost market share to Middle Eastern carriers that have won consumers over with competitively priced airfares, higher frequency and the promise of superior inflight service. Emirates and Qatar Airways both have a daily service to the Seychelles. Etihad also started operating to the Seychelles on Nov. 1 with a four-times-weekly service that it clearly hopes to increase now that it appears set to win traffic with the help of Air Seychelles.