Air Canada to cut 2,000 jobs in fall, reduces flights to deal with fuel cost

THE CANADIAN PRESS
MONTREAL - Air Canada (TSX:AC.B) will cut up to 2,000 jobs at the end of this year as it sharply reduces capacity to deal with the rising cost of fuel and is warning there are likely more cutbacks to come.

Canada's biggest airline said Tuesday it needs to fly fewer trips as oil prices keep rising to record levels and will cut capacity by seven per cent from its fall and winter schedule.

Fewer flights mean the airline will require less staff to operate across all levels of the organization, the company said.

"The loss of jobs is painful in view of our employees' hard work in bringing the airline back to profitability over the past four years," president and CEO Montie Brewer said in a statement.

"I regret having to take these actions but they are necessary to remain competitive going forward. Air Canada, like most global airlines, needs to adapt its business and reduce flying that has become unprofitable in the current fuel environment."

"If fuel prices remain at current levels, we can anticipate further capacity reductions."

Air Canada says every time oil increases by $1 per barrel, it costs the airline an additional $26 million a year. The company spend more on fuel than any other expense, representing more than 30 per cent of its total operational spending.

With oil over US$133 a barrel, the airline estimates it will shell out almost C$1 billion more in 2008 than in it did in 2007. It says the average cost of taking one passenger on a round trip has increased to $230, from $146 in 2007 and $110 in 2004.

It also blames federal and provincial fuel excise taxes, security fees and airport charges "that are amongst the most expensive in the world today" as roadblocks to profitability.

Air Canada plans to slash domestic capacity in the fourth quarter of this year and first quarter of 2009 by two per cent, U.S. transborder capacity by 13 per cent and international capacity by seven per cent, for a total of seven per cent across its system.

Among routes being jettisoned are the previously announced suspension of Toronto to Rome non-stop service - although that will remain for the high-traffic summer season - and the elimination of non-stop service from Vancouver to Osaka, Japan.

With the reductions, Air Canada expects to see full-year capacity growth between one per cent and minus one per cent. It had originally forecast growth between one and 2.5 per cent over 2007 levels.

© The Canadian Press, 2008