August 25, 2017 / 12:14 AM / a year ago

UPDATE 3-Boosted by near-record profit, Qantas eyes 'last frontier' of commercial flights

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

* Aims for A$400 mln a year in savings, shares hit 10-year high

* Lays out plans for non-stop Sydney-London flights from 2022 (Recasts and writes through with CEO comments)

By Jamie Freed

SINGAPORE, Aug 25 (Reuters) - Qantas Airways Ltd, upbeat after reporting near-record profits that vindicated a three-year turnaround strategy, laid out plans on Friday to develop the “last frontier” of non-stop flights - 20 hours from Sydney to London.

It also announced a new cost-cutting target of A$400 million ($315 million) in savings each year as well as a share buyback, helping its stock surge to a 10-year high.

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 a soft business travel market at home.

The strategy has worked - giving Australia’s biggest airline the confidence to proceed with its ambitions to have the world’s longest commercial flights operational by 2022.

Non-stop Sydney-London flights, which would be three hours shorter than current routes with stops in cities such as Dubai and Hong Kong, would allow Qantas to charge a premium over rivals.

“This is a last frontier in global aviation. The antidote to the tyranny of distance,” Chief Executive Alan Joyce said.

Qantas will spend a year working with Airbus SE, Boeing Co and engine manufacturers evaluating the capabilities of A350 and 777X aircraft before issuing a formal tender.

The improvements in the aircraft range are expected to come not from additional fuel tanks, but from tweaks to the design of the wings, adding engine thrust and reducing the aircraft weight for efficiency, he told Reuters in a phone interview.

“The first phase is to try and get both aircraft to do the critical missions - which is next year. There is then a process that you go through to do the financial evaluation and tender both of them,” he said.

Qantas has not said how many of the new model A350 or 777X aircraft it plans to order, but Joyce said the planes would allow the airline to fly non-stop to new destinations like New York, Paris and Brazil as well as London.

The airline reported underlying pre-tax profit of A$1.4 billion for the year ended June 30, down 8.6 percent on the prior year’s record but at the top of the airline’s guidance range.

“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,” Sondal Bensan, an analyst at BT Investment Management, Qantas’s biggest shareholder, wrote in an email.

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

The cuts would come primarily on routes used by the resources sector, where demand has fallen. Joyce expects international capacity to rise 5 percent in the first-half as it shifts aircraft to growing markets in Asia.

Pleasing investors, Qantas announced a A$373 million share buyback and for staff, a A$2,500 bonus for each of its 25,000 non-executive employeees.

Qantas said it was also planning to benefit from initiatives like adding more seats to aircraft at its budget arm Jetstar, improving aircraft turnaround times and introducing more modern planes like the 787-9.

$1 = 1.2661 Australian dollars Reporting by Jamie Freed in Singapore; Additional reporting by Shashwat Pradhan in Bengaluru; Editing by Stephen Coates and Edwina Gibbs

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