Air Canada says it is cutting up to 2000 jobs at the end of this year as it sharply reduces capacity to deal with the rising cost of fuel.

The airline said it was cutting trips by seven per cent in its autumn and winter schedule as oil prices rose to record levels.

Company officials say it will need fewer employees.

"If fuel prices remain at current levels, we can anticipate further capacity reductions," president and chief executive Montie Brewer said in a statement today.

"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.

Fuel costs have hit the industry hard, and Air Canada is not alone in cost-cutting measures.

In Australia, Qantas had already announced plans to axe several Asian flights, replace others with Jetstar services and shed jobs as it deals with an expected $2 billion increase in its fuel bill next financial year.

Qantas will also reduce capacity by five per cent - the equivalent of grounding six aircraft.

Air New Zealand has also said it will raise air fares and eliminate flights on some routes.

Air Canada, the country's biggest airline, plans to slash domestic capacity in the fourth quarter of this year and first quarter of 2009 by two per cent, US transborder capacity by 13 per cent and international capacity by seven per cent, for a total of seven per cent across its system.

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

Air Canada said every one-dollar increase in the price of oil per barrel added about $C26 million ($A27.15 million) to its annual fuel cost.

The company spends more on fuel than any other expense, representing more than 30 per cent of its total operational spending.

With oil over US$133 a barrel, the airline estimated it would pay almost $C1 billion more in 2008 than in it did in 2007. It said the average cost of taking one passenger on a round trip has increased to $C230 ($A240), from $C146 in 2007 and $C110 in 2004.

The company also blamed federal and provincial fuel excise taxes, security fees and airport charges that were among "the most expensive in the world today" as roadblocks to profitability.

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

"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," spokesman Richard Bartrem said.

In the United States, Continental Airlines and United Airlines have also announced job cuts and capacity reduction while American Airlines has said it would cut capacity by up to 12 per cent after the peak summer travel season and would probably eliminate thousands of jobs.

AP/AAP