Montreal-based Air Canada said Wednesday it will sue for the right to resume flying at Billy Bishop Toronto City Airport.

The airline said in a conference call that it has launched a lawsuit in the Federal Court of Canada to resume flying to the Toronto Island airport where rival Porter Airlines is now the only airline allowed to operate.

Air Canada says it is suing for the right to operate at the Toronto Island airport. (CBC)

The airline said it has "not received a satisfactory response" from the Toronto Port Authority, which oversees the operations of the airport, in negotiations to resume service there.

"We are anxious to get into the airport, our customers want it, and it is an opportunity we need to pursue," said CEO Calin Rovinescu. "We'll see what the courts say and we'll take it from there."

Air Canada has not flown into the island airport since it was evicted in 2006 and Porter gained exclusive access.

Tuesday, the regional partner of Air Canada — Halifax-based Jazz Air LP — announced it had signed a deal to buy 15 Bombardier Q400 NextGen aircraft. The purchase prompted speculation it would use the aircraft to provide service to Toronto Island.

Improves earnings

Also on Wednesday, Air Canada reported a smaller quarterly loss.

Canada's largest airline had a loss of $56 million in its fourth quarter, compared with a $727-million shortfall in the same period in 2008.

Douglas Reid, a professor of business at Queen's University in Kingston, Ont., told CBC News the smaller loss is hardly good news, and that Air Canada's situation is still "fragile," given its performance in 2009.

"Revenues were off 12 per cent [compared with 2008] ... operating expenditures were only off 10 per cent, their costs, excluding fuel, were up 3.3 per cent," he said.

Air Canada's performance is typical of the international airline industry during a recession. During tough economic times, airlines are typically among the first to see customer demand fall and the last to see it recover as economy improves.

"This is an industry that is very unforgiving, this is an airline that doesn't have very many friends, this is a labour environment at Air Canada that is ugly, and [the airline] is not going to be turned around in a very short period of time," he said.

The latest loss would have been bigger had it not been for $108-million gain on foreign exchange.

The latest quarterly net loss amounted to 25 cents per diluted share, compared with a loss of $7.27 per share in the fourth quarter of 2008.

Operating revenues fell by $150 million to $2.35 billion from nearly $2.5 billion a year earlier as fewer passengers flew because of the weaker economy, which forced the airline to lower prices.