Significant Capacity and Workforce Reductions at Air Canada

In response to record high fuel prices, Air Canada has confirmed a reduction in capacity which will impact fleet and staffing levels effective with the implementation of its fall and winter schedule. Other airline's to take similar moves recently include American Airlines, United Airlines, Air New Zealand, Qantas, Continental Airlines and QantasLink.

Air Canada plans to reduce total system capacity by 7 per cent in the fourth  quarter 2008 and first quarter 2009, compared to the same period a year earlier. The reduction in flying will require fewer employees to operate the airline, which will result in a decrease in staff levels of up to 2,000 positions across all levels of the organization.

"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," said Montie Brewer, President and Chief Executive Officer. "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."

The airline industry has been severely impacted as the price of oil has more than doubled from one year ago and has quadrupled since 2004. Every $1 increase in the price of oil per barrel adds an estimated $26 million to Air Canada's annual fuel expense. Fuel is the carrier's single largest expense item accounting for more than 30% of total operating expense, and at current price levels will cost the airline close to $1 billion more in 2008 than in 2007.

Including the benefit of fuel hedging, at current fuel prices and capacity levels, Air Canada would spend an average of $230 in fuel costs alone to carry one passenger on a round trip journey, which is up from an average of $146 in 2007, and $110 in 2004.

In the fourth quarter 2008 and first quarter 2009, Air Canada plans to reduce domestic capacity by 2%, U.S. transborder capacity by 13% and international capacity by 7%, for a total system capacity reduction of 7% for the two quarters compared to the prior year's period.

This 7% system capacity reduction includes capacity adjustments previously announced including the suspension of Toronto-Rome non-stop service (with resumption planned for the peak summer season) and the withdrawal of Vancouver-Osaka non-stop service effective October 26, 2008.

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