Aug. 19 (Bloomberg) -- Qantas Airways Ltd., Australia's biggest airline, posted a record profit for the second half on cost cuts and a rebound in travel demand. Qantas stock fell as much as 6 percent on concern fuel prices will erode earnings.

Second-half profit was A$290.6 million ($208 million) compared with last year's loss of A$9 million. The airline's second-half profit was obtained by subtracting first-half numbers from full-year results released by the Sydney-based airline.

Qantas stock plunged on concern cost cuts by Chief Executive Geoff Dixon, 64, who aims to save a combined A$1.5 billion in the next three years, won't be enough to counter the effects of surging oil prices. Qantas, facing increasing competition on some of its busiest routes from Virgin Atlantic Airways, Singapore Airlines Ltd. and Dubai-based Emirates, is also losing domestic customers to Virgin Blue Holdings Ltd.

``The headline number was a little shy of expectations and the operating environment continues to be challenging,'' said Leigh Gardner, head of sales trading at ABN Amro Australia Ltd. in Sydney. ``The future earnings will be affected.''

The airline's full-year net income rose 89 percent to a record A$648.4 million, or 36 cents a share, for the 12 months ended June 30, from last year's A$343.5 million, or 20 cents a share. Sales fell 0.2 percent to A$11.4 billion.

Qantas shares fell as much as 6 percent to a 12-month low of A$3.13 after the results were announced and changed hands at A$3.19 at 11:51 a.m. in Sydney.

Lower Than Expectations

Qantas' full-year profit was lower than the A$657 million expected by 13 analysts surveyed by Thomson Financial.

The airline last year cut its fuel bill by A$204 million, helped by its hedging policy and a stronger Australian dollar, which made U.S. dollar-denominated fuel costs cheaper.

``The rapid escalation of the price of crude oil is the major factor facing Qantas and the aviation industry worldwide,'' Qantas said in a statement to the Australian Stock Exchange.

The price of jet fuel, which typically makes up about a fifth of an airline's costs, surged to a 14-year high of $53.92 a barrel in Singapore yesterday, tracking the record price of crude oil in New York, according to oil pricing service Platts.

Qantas had hedged, or contractually fixed, 70 percent of its oil cost at $32 a barrel, Chief Financial Officer Peter Gregg said on a conference call.

To protect its earnings, Qantas has been cutting costs and imposing surcharges on tickets. The airline's costs fell A$552 million to A$10.26 billion in the year, helped by savings in wages, selling and marketing costs and fuel charges, Qantas said.

The airline will decide by the end of this week whether to increase a fuel surcharge on tickets, Dixon said.

``If things stay as they are, there won't be any option for us,'' he said.

Qantas will pay its staff a one-off cash bonus of A$1,000.

To contact the reporter on this story: Barbara Adam in Melbourne at badam2@bloomberg.net

Last Updated: August 18, 2004 21:57 EDT