Air Canada, the country's largest airline, reported a better-than-expected quarterly profit on lower fuel expenses and cut its cost estimate for the year.

Air Canada said it now expected full-year adjusted cost per available seat mile (CASM), which excludes fuel costs, to fall in the range of 2.75-3.75 per cent. The airline had previously estimated a decline of 1.75-2.75 per cent.

The company's fuel costs per litre, typically an airline's largest variable cost, fell 22 per cent to 52 Canadian cents in the second quarter.

However, net earnings fell to $186 million, or 66 Canadian cents per share, in the latest quarter from $296 million, or $1.00 per share, a year earlier.

Excluding items, Air Canada earned 72 Canadian cents per share, well above analysts' average estimate of 58 Canadian cents, according to Thomson Reuters I/B/E/S.

Operating revenue rose 1.3 per cent to $3.46 billion, but was below analysts' estimate of $3.52 billion.