(Reuters) -Air Canada on Tuesday posted a smaller quarterly loss and forecast higher full-year expenses, as the largest Canadian carrier ramps up capacity amid a rise in labor costs and jet fuel prices.

While airlines expect travel demand to hold up in the second half of the year, staffing gaps and aircraft shortages have made it tougher to ramp up capacity to make the most of a demand boom.

U.S. carriers are also struggling to offset higher costs even as a surge in travel demand has boosted their pricing power.

The Canadian carrier expects 2022 adjusted cost per available seat mile to be up about 15% to 17%, above 2019 levels, compared to its previous forecast of a 13% to 15% rise.

Air Canada reported an operating loss of C$253 million, compared with a loss of C$ 1.13 billion a year earlier.

Operating revenue rose to C$3.98 billion from C$837 million last year.

(Reporting by Kannaki Deka in Bengaluru;Editing by Vinay Dwivedi)