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Air Canada planes sit on the tarmac at Toronto Pearson International Airport, on April 28, 2021.Nathan Denette/The Canadian Press

Air Canada is raising airfares to combat soaring fuel prices that threaten to slow the Montreal-based carrier’s recovery.

Canada’s largest airline reported first-quarter financial results Tuesday and said revenues rose to $2.6-billion from $729-million in the same period of 2021, as passengers shook off fears of COVID-19 and resumed flying, albeit in smaller numbers than in prepandemic days.

For the three months ended March 31, Air Canada lost $974-million, or $2.72 a share, an improvement from the year-ago loss of $1.3-billion ($3.90).

However, the results marked a deterioration in financial performance from the fourth quarter of 2021, and Air Canada’s share price declined by 7.3 per cent to close at $22.46 on the Toronto Stock Exchange.

Michael Rousseau, chief executive of Air Canada, said the restrictions to protect against the Omicron variant slowed demand in January, but sales improved as vaccine and testing requirements eased in February and March.

“Traffic is returning, revenues are growing, our network is being restored and our finances, including our liquidity, are very strong,” Mr. Rousseau said on a conference call with analysts after the results were released early Tuesday morning.

Walter Spracklin, a stock analyst at Royal Bank of Canada, said higher fuel prices mean Air Canada is less able to benefit from its higher ticket prices.

Air Canada’s loss was deeper than expected, although seat capacity was in line with Mr. Spracklin’s forecast. “Given that [the first quarter] remains very much a recovery quarter, we are less concerned about variations to expectations as long as the trajectory is in the right direction – which evidence suggests it is,” he said.

The average fuel cost increased to 98.6 cents a litre, up from 62.7 cents. Air Canada expects fuel will average $1.24 cents a litre in 2022, amid persistently high oil prices owing in part to Russia’s war on Ukraine. Fuel expenses rose to $750-million from $200-million in the first quarter of 2021.

Amos Kazzaz, Air Canada’s finance chief, said fuel prices are expected to continue to rise before settling at a historically high level. “We believe that much of this increase can be recovered through fares, other revenue optimization tools [surcharges], as well as through our focus on cost reduction,” Mr. Kazzaz said.

Lucie Guillemette, Air Canada’s chief commercial officer, said pent-up demand for travel will allow the carrier to raise prices to cover higher fuel costs, but this tack might not be sustainable on very competitive or price-sensitive routes.

In the current quarter, Air Canada will boost its available seat capacity by 414 per cent from the same quarter in 2021. But this is about 73 per cent of the second quarter in 2019, before the pandemic caused the airline industry to collapse.

By the summer, Air Canada’s seat capacity will be about 80 per cent of 2019 levels, Ms. Guillemette said.

Air Canada’s payroll swelled to more than 27,000 people from 16,000 a year ago, amid hiring and recalling staff to meet demand. Air Canada flew more than 5.4 million passengers in the quarter, up from 1.1 million in the first quarter of 2021.

Passenger load factor, an industry measure of how many seats are sold on a given plane, rose to 66 per cent from 43 per cent.

For the summer, Air Canada is restoring 41 North American routes it dropped during the pandemic, and launching seven new domestic and transborder ones. The airline will reach 51 Canadian and 46 U.S. airports, in addition to 34 routes across the Atlantic and Pacific oceans.

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