The Montreal-based company reported Tuesday that its system load factor for July was 85.9 per cent, down from 86.4 per cent a year ago.
In contrast, Calgary-based rival WestJet Airlines (TSX:WJA) posted a record load factor in July, with improvements in all key performance measures compared with July 2011.
Air Canada's (TSX:AC.B) lower load factor came as traffic fell 1.1 per cent and capacity was cut 0.5 per cent compared with a year ago.
Still, the result was "close to last year's record load factor for the same month and underscores our continued disciplined approach to managing capacity," Air Canada president and chief executive Calin Rovinescu said.
Air Canada said the load factor on its U.S. and transatlantic flights dropped to 80.1 per cent and 87.5 per cent respectively, down from 81.2 per cent and 89.5 per cent.
Domestic flights improved their load factor to 84 per cent, up from 83.1 per cent a year ago, while flights across the Pacific improved to 91.5 per cent from 91.2 per cent.
Cameron Doerksen of National Bank Financial said Air Canada is on pace to exceed his forecast for the third quarter with August typically having the highest load factor of the year.
Air Canada will report its third-quarter results Wednesday. The airline is expected to lose one cent per share on $3 billion of revenues, compared with a loss of 20 cents per share on $2.9 billion of revenue a year ago, according to analysts polled by Thomson Reuters.
Meanwhile, WestJet reported a July load factor of 85.3 per cent, up from 81.6 per cent in July 2011, even as the airline increased capacity by two per cent compared with a year ago.
Traffic on WestJet improved 6.6 per cent compared with July 2011.
"Demand remains strong and momentum continues at WestJet with another record load factor and strong year-over-year traffic growth," commented WestJet president and CEO Gregg Saretsky.
Doerksen said WestJet should meet or exceed his expected load factor for the quarter.
He added that the airline's revenue per seat mile outlook for the quarter will be "moderately higher" that the six per cent growth reported in the first and second quarters.
"Record July operating statistics support our positive view of end market conditions for WestJet," he wrote in a report.
Regional carrier Porter Airlines reported a July load factor of 70.1 per cent, up from 66.8 per cent a year ago.
Capacity at the airline, based on Toronto's waterfront, increased 12.9 per cent for the month, while traffic increased 18.3 per cent.
"The peak summer travel season is meeting our expectations with strong demand projected for coming months," Porter president and chief executive Robert Deluce said.
On the Toronto Stock Exchange, Air Canada's shares were unchanged at $1.16, while WestJet shares gained four cent to $16.05 in afternoon trading Tuesday.