Air Canada reported an adjusted net income of C$516 million ($393 million) for the third quarter (3Q), down 39% from a restated adjusted net income of C$922 for the year-ago quarter.

The Canadian flag carrier’s 3Q unadjusted net income was C$645 million, compared to $1.7 billion a year ago, when the airline received a net income tax recovery of C$793 million.

The carrier saw record 3Q operating revenues of C$5.4 billion, an 11% increase year-over-year (YOY) from C$4.9 billion.

“Strong revenue and cost management substantially offset the challenges we faced in the quarter, principally the significant increase in fuel prices,” CEO Calin Rovinescu said.

Traffic increased 7.5% YOY and capacity was up 6.7%, while PRASM rose 4.2% to C15.1 cents and yield increased 3.4% to C17.6 cents.

“We expect our revenue momentum to continue in the fourth quarter and into next year,” Rovinescu said. “Indeed, with the trends we are seeing now, we expect our PRASM performance, both in the domestic market and throughout the network, to continue to improve in the final quarter of 2018.”

Adjusted CASM, which excludes fuel costs and other items, rose 1.1% YOY to C9.4 cents. That was better than the airline’s July projection, when 3Q adjusted CASM was expected to rise 2% to 3%. The company expects fourth-quarter adjusted CASM to increase 1.5% to 2.5% YOY, and a full-year range of flat to up 0.75% compared to 2017.

Unadjusted CASM increased 9.8% to C13.8 cents, driven largely by higher fuel costs, Rovinescu said. Fuel cost per liter rose nearly 40% YOY.

Rising fuel prices and the capacity increase contributed to a 17% increase in operating expenses to C$4.6 billion YOY.

In August, an Air Canada-led consortium that includes TD Bank, CIBC and Visa Canada Corp., reached an agreement with Aimia to purchase Aimia’s Aeroplan loyalty business for C$450 million, including the assumption of about C$1.9 billion of Aeroplan miles liability. The Aeroplan acquisition will ease the transition to a new frequent flyer program Air Canada plans to launch in 2020, the airline said. The deal is expected to be completed by the year-end, the company said.

Jack Wittman,