August 25, 2017 / 12:16 AM / a year ago

UPDATE 2-Australia's Qantas posts near-record profit, eyes 'last frontier' of Sydney-London flights

* Underlying pre-tax profit of A$1.4 bln second-best ever

* Aims for A$400 million a year in savings

* Confirms plans for non-stop Sydney-London flights from 2022

* Shares hit 10-yr high (Recasts, adds analyst comments)

By Jamie Freed

SINGAPORE, Aug 25 (Reuters) - Australia's biggest airline Qantas Airways Ltd set new cost-cutting targets on Friday after posting its second-highest annual profit and confirming its ambitions for non-stop flights from Sydney to London and New York.

Chief Executive Alan Joyce said the underlying profit vindicated a three-year turnaround strategy and vowed to maintain the momentum by finding another A$400 million ($315.92 million) in savings each year.

"We’re taking the energy and focus from the turnaround and putting it into continuous improvement," Joyce told reporters.

Benefits would come from initiatives like adding more seats to budget arm Jetstar's aircraft, improving aircraft turnaround times and introducing more modern planes like the 787-9, the airline said.

Underlying pre-tax profit was A$1.4 billion for the year to June 30, down 8.6 percent on the prior year's record but at the top of the airline's guidance range. It beat market expectations of A$1.38 billion.

Qantas shares jumped 2.8 percent to A$5.96, hitting a 10-year high in late morning trade, while the broader S&P/ASX 200 index fell 0.3 percent.

"The big positive looks to be the dramatic improvement in both domestic and international revenue per available seat kilometre (RASK) in the fourth quarter and the implications that has into FY18," said Sondal Bensan, an investment analyst at Qantas's biggest shareholder, BT Investment Management.

RASK, a measure combining ticket prices and seats filled, fell 3 percent in the domestic market and 9 percent in the international market in the first half. But in the second half it rose 3 percent in the domestic market and was only 2 percent lower in the international market.

Qantas said it would cut domestic capacity by 1 percent in the first half, in a move expected to drive up ticket prices further.

Joyce said the cuts would come primarily on routes used by the resources sector, where demand had fallen. International capacity would rise 5 percent in the half as it shifts aircraft to growing markets in Asia.

For the past three years, Joyce has slashed staff numbers and driven the "Flying Kangaroo" fleet harder, driving up fares to withstand competition on international routes and offset the soft business travel market at home.

The strategy delivered a record profit last year after a string of hefty losses, putting the airline in a position to offer share buybacks and staff bonuses.

On Friday it said it would buy back A$373 million of shares and fork out A$55 million in bonuses, giving 25,000 non-executive staff A$2,500 each.


Qantas also confirmed plans to sell non-stop, 20-hour flights from Sydney to London and New York by 2022 if Airbus SE or Boeing Co deliver aircraft capable of travelling the distance.

"This is a last frontier in global aviation. The antidote to the tyranny of distance," Joyce said.

Qantas was working with Airbus and Boeing to discuss refinements that could increase the range of the A350-900ULR and 777-8, such as lowering weight and increasing engine thrust, he said.

The 97-year old airline declared a final dividend of 7 Australian cents a share, the same as the previous year. ($1 = 1.2661 Australian dollars) (Reporting by Jamie Freed in Singapore and Shashwat Pradhan in Bengaluru; Editing by Byron Kaye and Stephen Coates)

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