Air Canada (AC.TO) reported a profit in the first quarter of the year and nearly doubled its operating revenue as strong travel demand continues to fuel the airline's recovery from the COVID-19 pandemic.

The Montreal-based airline saw its net income in the first three months of the year reach $4 million, a nearly $1 billion improvement from the $974 million loss it posted during the same quarter last year. Operating revenue nearly doubled in the quarter, reaching $4.9 billion, compared to $2.6 billion in 2022, when the airline was still grappling with some pandemic travel restrictions.

Air Canada's chief executive officer Michael Rousseau said the results were driven by strong demand across all markets and lower fuel prices.

"Our first quarter financial results exceeded both internal and external expectations and we expect demand to persist, supported by strong advance bookings for the remainder of the year," Rousseau said in a news release.

Shares of the airline were up as much as 5 per cent in early trading on Friday on the Toronto Stock Exchange. The stock closed the trading day flat on Friday at $21.12 per share, an increase of less than 1 per cent compared to Thursday's close. Last Friday, Air Canada's stock rose 12 per cent by the close of trading after it announced a boost to its full year outlook, thanks to stronger demand and lower fuel prices.

The results are the latest sign that Air Canada may be reaching a full recovery from the lows of the COVID-19 pandemic, during which the airline failed to turn a profit for 11 straight quarters. The airline's load factor, a measurement of the percentage of seats filled on a plane, jumped to 85 per cent in the first quarter of this year, above what analysts expected. With future bookings appearing strong, Air Canada plans to increase capacity by 23 per cent in 2023 compared to last year, which would bring total capacity to 90 per cent of pre-pandemic levels.

Passenger revenue more than doubled for the first quarter of 2022, with about half the increase coming from international and sun markets, said Mark Galardo, Air Canada's executive vice president of revenue and network planning.

"People want to travel," Galardo said.

While the company said it sees strong bookings for the remainder of the year, RBC Capital Markets analyst Walter Spracklin said that how demand fares in the wake of a weakening macroeconomic backdrop and increased domestic competition will be key.

"While it is our view that demand and pricing is expected to weaken post-summer, we are mindful of a potential structural shift in the nature of airline demand that may see travel hold up despite a weakening economy," Spracklin wrote in a note to clients.

Competition is heating up in the Canadian airline space, with several new low-cost carriers launching since the start of the COVID-19 pandemic. Rousseau said on a conference call with analysts on Friday the company is watching the expansion of domestic carriers, but that the airline is confident it will compete in a market with more carriers.

"There's no doubt Canada is seeing an influx of narrow-body capacity today and certainly planned over the next several years. We're very cognizant of that," Rousseau said.

"The fact that we're so well diversified around the world and with different businesses like [Air Canada Vacations], Aeroplan, and cargo gives us comfort that we'll continue to do very well. Certainly there'll be some pressure domestically, and we're aware of that and we plan for that as we go forward."

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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