Air Canada reported one of the biggest losses in the airline's history Thursday, but said the further expansion of its discount arm Tango will help the company bounce back.

The Montreal-based carrier says it lost $1.25 billion last year.

Revenues fell to $9.6 billion in 2001 from nearly $10.8 billion, a drop of 11 per cent. The airline says it lost $10.43 a share for 2001, compared with a net loss of 69 cents a share in 2000.

In the fourth quarter alone, the company reported a net loss of $380 million, or $3.16 a share, a worse performance than analysts had expected.

Besides being battered by the slump in air travel following September 11, Air Canada's CEO Robert Milton said the carrier has also been hit hard by high fuel prices.

"The best thing I can say about 2001 is that it's over," Milton said Thursday.

But Milton added he believes the industry will recover faster in Canada than in the United States. He says Air Canada has already cut costs, slashed 12,500 jobs, slimmed in-flight services, and trimmed its frequent flyer bonuses.

Milton says the company will focus on low-fare markets in Canada as it tries to recover from its huge loss. The airline's no-frills brand Tango will play a key role in that strategy, he says, adding he expects the airline will make profits during the peak summer travel season.

Tango, which launched in November, is growing to at least 16 aircraft, and plans to serve 21 cities by summer. It announced 14 new routes Thursday, and service could even be extended across the border, Milton said.

But Transport Minister David Collenette issued a stern suggestion that Air Canada might want to re-think its expansion plans. The minister suggested that the dominant airline should drop some secondary markets in Canada and leave room for competitors.

"Why stay on money-losing routes?" Collenette asked outside the Commons. "Why not rationalize your route structure? Because if you don't, we're going to do it for you," he warned.

"We have to get (Air Canada's) market share down."

The minister added that Air Canada's losses are unfortunate, but points out that Milton himself thinks the carrier will be making money again by the end of this year. Collenette said it will be quite a challenge to make such a quick return to profitability for an airline that demanded a massive government bailout after the Sept. 11 attacks.

"You want $4 billion one week and then you're saying you're going to return to profitability by the end of this year? Something doesn't really square," Collenette said.