Star Alliance carrier Air Canada is to shed up to 2,000 jobs and cut system capacity by 7% over the winter season in a bid to counter the rising costs of fuel.

International capacity will be lowered by 7%, domestic capacity by 2% and transborder capacity by 13%. The airline will begin imposing the cuts from the fourth quarter of this year, and is warning that they might not be limited to these initial figures.

Air Canada chief Montie Brewer says: "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. I regret having to take these actions but they are necessary to remain competitive."

Brewer says a C$1 increase in the price of a barrel of oil adds about C$26 million (US$25.5 million) to the airline's fuel expenditure over the year. Average round-trip cost per passenger has risen to C$230, nearly 60% higher than last year.

Air Canada is already facing a possible fuel bill this year some C$1 billion higher than that for 2007. Brewer adds: "If fuel prices remain at current levels, we can anticipate further capacity reductions."

It has yet to detail which specific services will be affected by the cuts, although they will include the previously-announced temporary suspension of Toronto-Rome flights and the loss of its Vancouver-Osaka connection. The airline has not indicated whether it will reduce its fleet.

Air Canada expects its full-year capacity over 2008 to between +1% and -1% of the figure in 2007, below the 1-2.5% increase it had projected in early May.