Air Canada to cut 2,000 jobs, slash capacity

TORONTO (AP) - June 20, 2008 "If fuel prices remain at current levels, we can anticipate further capacity reductions," president and CEO Montie Brewer said in a statement.

Canada's biggest airline will reduce capacity on routes to the United States by 13 percent, meaning a 7 percent cut across the board including domestic and international flights.

"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," Brewer said.

"I regret having to take these actions, but they are necessary to remain competitive going forward," he added. "Air Canada, like most global airlines, needs to adapt its business and reduce flying that has become unprofitable in the current fuel environment." The carrier has about 28,000 employees.

Air Canada's announcement comes shortly after drastic cuts were made at major U.S. airlines.

Two weeks ago, Continental said it will shed 3,000 jobs - more than 6 percent of its work force - and reduce capacity by 11 percent this fall. United Airlines, the nation's No. 2 carrier, then announced it would cut up to 1,100 more jobs, ground 70 airplanes and drop its coach-only service, named Ted. In May, American Airlines, the largest U.S. carrier, said it would cut capacity 11 percent to 12 percent after the peak summer travel season and probably eliminate thousands of jobs, though it hasn't given an exact figure.

Delta Air Lines Inc. said in March it would cut U.S. capacity about 10 percent in the second half of 2008. Northwest Airlines Corp., which Delta is buying, has announced smaller reductions, and a Northwest spokeswoman said further moves were being reviewed.

Air Canada spokeswoman Isabelle Arthur said with the cost of jet fuel more than doubling in the past year and quadrupling since 2004, further capacity reductions are likely if prices remain at current levels.

Air Canada says every one-dollar increase in the price of oil per barrel adds about $25.5 million to its annual fuel cost. Fuel represents more than 30 percent of its total operational costs.

With oil costing more than $133 a barrel, the airline estimates it will shell out almost $1 billion more in 2008 than in it did in 2007.

It also blames Canadian 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 cut capacity in the fall and winter.

Air Canada said it will have to cut a nonstop flight from Toronto to Rome, Italy, after August, and a nonstop flight from Vancouver to Osaka, Japan.

Employees at Air Canada's offices at Trudeau International airport in Montreal declined to comment on the cuts.

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