The Australian airline, which is 17% owned by British Airways, said it would continue to trim costs this year.

Demand, it said, has started to stabilise following the outbreak of the deadly Sars virus in Asia and the US-led invasion of Iraq.

The company's shares rose 3.9% in Sydney, closing at a year high.

Majority

Profit in the six months ending 31 December rose 1.5% to 358m Australian dollars ( �150m ). Analysts had been expecting a drop.

First-half earnings probably will account for about 60% of annual profit, the company said.

Fuel costs, meanwhile, dropped by 20% during the second quarter, partly helped by the Australian dollar's climb to a seven-year high against the US dollar, the company said

It also introduced newer, more efficient aircraft, cutting fuel consumption.

Qantas plans to lower outgoings by an extra A$500m. It already had earmarked A$1bn in cost cutting.

While demand on domestic routes increased, international journeys declined.

The company, however, was cautiously optimistic about the outlook for the future and the effect of low-cost carriers such as rival Virgin Blue.