MONTREAL -- Air Canada reported the most profitable quarter in the airline's history, crediting a demand in all markets, the contribution of its low-cost Rouge subsidiary and falling costs.

The Montreal-based company said net income grew to $223 million, or 75 cents per share for the period ended June 30. That compared to a loss of $23 million, or nine cents per share, a year ago.

It benefited from a $41-million tax gain, which partially offset higher fuel costs and the impact of lower foreign currency.

Adjusting for one-time items, its profit soared 21 per cent to $139 million or 47 cents per share. That compared to $115 million or 41 cents per share a year earlier.

Revenues increased 8.1 per cent to $3.3 billion on an 8.5 per cent increase in capacity. However, yield or pricing line declined 2.1 per cent.

Air Canada was expected to earn 51 cents in adjusted profits on $3.3 billion of revenues, according to analysts polled by Thomson Reuters.

"These financial results highlight the significant and incremental progress being achieved through our various value-enhancing strategies," CEO Calin Rovinescu said Thursday during a conference call.

He said investments into providing seamless transfers at Canada's major hubs is starting to show results.

Rovinescu added that Rouge, which has carried two million passengers to leisure routes at lower cost, is exceeding financial expectations.

"From a financial point of view, the performance of these routes since the transfer clearly validates our decision."

He also told analysts that the subsidiary is doing a better job of communicating the changes in service levels to premium customers, some of whom have complained.

Although it is adding new routes, Air Canada said Rouge will end the year with 28 aircraft -- eight Boeing 767s and 20 Airbus 319s -- down from its prior forecast of 33. The reduction is being driven to ensure the mainline fleet has enough capacity because 20 Embraer E190 planes are ending service later than planned.

Air Canada said its load factor increased 1.1 percentage point in the quarter to a record 84.2 per cent while revenue passenger miles increased 9.9 per cent. Advance ticket sales hit a peak of $2.3 billion.

This "is consist with our healthy booking trends and further indication that the capacity we are adding is being readily absorbed by the demand we're experiencing in the markets that we serve," added chief financial officer Micheal Rousseau.

Air Canada is projecting capacity growth of nine to 10 per cent in the third quarter and adjusted costs to decrease 3.5 to 4.5 per cent

David Tyerman of Canaccord Genuity said the results were "up nicely" and in line with expectations.

"Overall, the second-quarter results and 2014 guidance might have a positive implication for our outlook," he wrote in a report.

On the Toronto Stock Exchange, Air Canada's shares lost 32 cents or 3.4 per cent at $8.94 in Thursday morning trading.