Tuesday, June 17, 2008

Air Canada Cuts 2,000 Jobs Plus Cutting Flights

Air Canada has joined a global trend by announcing plans to cut as many as 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 it will cut capacity by seven per cent from its fall and winter schedule.

Fewer flights mean the airline will require less staff across all levels of the organization.

The big Montreal air carrier had nearly 24,000 employees at the end of 2007, which means the latest cuts amount to just over 8% of its workforce.

Air Canada, like other global airlines, must adapt the business and reduce our flying, more specifically flying that has become unprofitable in this current environment.

They will be meeting with union representatives to discuss options and these options could help minimize involuntary layoffs.

Arthur declined to outline the possible alternatives.

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 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% 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 as roadblocks to profitability.

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.

They regret having to take these actions but they are necessary to remain competitive going forward.

Rival airline WestJet said it has no plans to cut capacity or lay off employees to combat rising fuel costs.

It is business as usual for us.

"Our low-cost business model continues to work. We are feeling the effects of record fuel prices and excessive airport fees and taxes but we will continue with the execution of our strategic plan."

The Calgary-based non-unionized airline plans to add two aircraft this year, bringing its fleet total to 77, with orders for 121 aircraft through 2013.

Air Canada's various unions learned of the cuts Tuesday morning.

Employees at its offices at Trudeau International Airport declined to comment.

Air Canada plans to cut domestic capacity in the fourth quarter of this year and first quarter of 2009 by two per cent, while slashing U.S. transborder capacity by 13 % 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.

Airlines around the world have announced similar moves and most have substantially raised fuel surcharges and added a series of new passenger costs.

U.S. carriers including American, United and Delta have announced plans to reduce capacity and eliminate jobs.

Delta Air Lines Inc. said it plans to cut twice as many jobs as the original goal outlined in March, when it offered voluntary severance payouts to more than half its workforce.

Air New Zealand said it will raise air fares and eliminate some routes.

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% over 2007 levels.

On the Toronto Stock Exchange, Air Canada's voting B shares rose 6 cents to $9, down from $17 late last year.

The Ottawa Macdonald-Cartier International Airport says they're unsure if recent cuts to Air Canada service – equating to up to 2,000 jobs and seven per cent of domestic and international routes.

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