Air Canada cuts jobs, capacity as fuel costs leap

Tue Jun 17, 2008 4:36pm EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Jeffrey Jones

CALGARY, Alberta (Reuters) - Air Canada ACa.TO will cut 2,000 jobs and shrink its capacity by 7 percent as runaway fuel prices sap the profitability of many of its routes, the country's biggest airline said on Tuesday.

Air Canada's drastic action, which translates into a 7 percent cut in its 28,000-employee workforce, follows moves by the company to park older, gas-guzzling jets and to add fuel surcharges to fares in a bid to offset surging oil prices.

But in the five weeks since it imposed extra fees to deal with then-record prices, oil has surged another 16 percent to near $140 a barrel, surprising energy analysts.

"I don't know what the tipping point was, but there's no question that, in the last month or so, the fuel crisis has gotten worse for airlines and Air Canada's really kind of following the lead of most of the major U.S. airlines in cutting back capacity for the fall," Versant Partners airline analyst Cameron Doerksen said.

Also on Tuesday, Virgin America, the low-cost carrier partly owned by Britain's Virgin Group VA.UL, said it will cut its capacity by 10 percent in the fourth quarter.

High fuel costs and a sputtering U.S. economy have combined to force some U.S. airlines into bankruptcy protection, while spurring others, such as Delta Air Lines DAL.N and Northwest Airlines NWA.N, into merger talks.

Air Canada's capacity cuts, to take effect in autumn and winter schedules, will be deepest on its Canada-U.S. transborder network, which will shrink by 13 percent. International capacity will drop by 7 percent.

Domestic routes will be trimmed by 2 percent, reflecting the relative strength of the Canadian economy and travel demand despite high oil prices, spokeswoman Angela Mah said.   Continued...

<p>Air Canada planes sit on the tarmac at Pearson International Airport in Toronto, June 17, 2008. REUTERS/Mike Cassese</p>