Air Canada Tuesday announced it would axe 2,000 jobs this year to meet the rising fuel costs.
Canada's premier airline was also scaling back flights on some long-haul routes as well as autumn and winter services in North America.
In a statement, Air Canada president and CEO Montie Brewer said: "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 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."
He warned that if fuel prices remain at current levels, "we can anticipate further capacity reductions."
Voted the best airline in North America in the 2007 Skytrax World Airline Awards, Air Canada has been struggling to cut costs as each extra dollar it pays on fuel imposes an additional annual burden of $26 million on it.
The airline, which spends 30 percent of its budget on fuel, said it will be forced to shell out an additional $1 billion on it .
The long-haul routes on the chop include the Toronto-Rome and Vancouver-Osaka non-stop flights, thus reducing its international services by seven percent.
From the last quarter of this year and the first quarter of 2009, the airline will scale back domestic flights by two percent and trans-border (US) flights by 13 percent.