* Qantas underlying pretax profit up 14.3 pct to record A$1.6 bln
* Carrier to buy back A$332 mln of shares
* Shares fall as much as 7.7 pct, cut loss after analyst briefing
* Air New Zealand sees near-record profit; fuel worries hit shares (Adds Air New Zealand results and brokerage comment; updates shares)
By Jamie Freed
Aug 23 (Reuters) - Australia's Qantas Airways posted a record annual profit, powered by its domestic business, but its shares fell on concerns about rising fuel prices despite the carrier saying it would be able to mitigate its impact.
Qantas forecast an A$690 million ($504.80 million) increase in its fuel bill for the current financial year but CEO Alan Joyce said the airline should be able to fully recover rising fuel costs in the domestic market and do so substantially in the international market.
Investors, however, were less sure. Shares fell as much as 7.7 percent in early trading, although losses narrowed to 2.4 percent by early afternoon after the management team reiterated the positive outlook on an analyst call.
Bank of America Merrill Lynch analysts, in a note, maintained their "buy" rating on the stock, telling clients the guidance supported their forecast of flat earnings in the current financial year versus a consensus estimate for a 6 percent fall.
The airline's underlying pretax profit, its most closely watched measure, rose to A$1.60 billion for the 12 months ended June 30 from A$1.40 billion a year earlier. That was in line with analysts' expectations. Australia's flagship carrier also announced an A$332 million stock buyback programme.
Separately, rival Air New Zealand Ltd reported on Thursday its second-highest ever annual profit before tax but shares fell 3 percent after it said earnings would fall by as much as 21 percent in the current financial year due to higher fuel prices.
Qantas, which controls nearly two-thirds of Australia's domestic capacity, said domestic underlying earnings before interest and taxes for Qantas and its low-cost arm Jetstar rose 25 percent for the year ended June 30 as they cut capacity and hiked fares.
CEO Joyce said forward booking revenue was running more than 6 percent higher than at the same time last year. He said Qantas would also increase revenue in its frequent flyer business.
Qantas expects to keep domestic capacity flat in the first half ending December 31 and for international capacity to rise by 1 percent. Joyce said demand remained strong, but the airline was focused on filling more seats rather than adding more capacity.
Under Joyce's reign, Qantas has executed a successful turnaround that has cut costs and allowed it to return cash to shareholders, helping to push the airline's shares to record highs. Qantas shares had risen 25 percent since the start of January before the results were announced.
The airline plans to launch the world's longest non-stop commercial flight, from Sydney to London, by 2022 after starting Perth-London flights in March.
Joyce said the carrier was in talks with Airbus SE and Boeing Co about ordering jets suitable for the mission and would make a decision next year, assuming it could also gain approval from regulators and its pilot workforce. ($1 = 1.3669 Australian dollars) (Reporting by Jamie Freed in Singapore; Additional reporting by Aditya Soni, Rushil Dutta and Susan Mathew in Bengaluru; Editing by Muralikumar Anantharaman)