Hottest news of the week in the tourism and travel industry is that the national carrier Qantas has moved to extract some value from its travel agency businesses.

Qantas is merging its travel business and putting it into its separately listed Jetset business.

The restructuring is the first part of the airline's previously announced segmentation strategy that would hive off other businesses such as frequent-flyer programs but with Qantas still maintaining control.

The announcement came as the airline said it had doubled its first half profit, which was buoyed by strong demand and cost control and was above market expectations.

Qantas said the merger of Qantas Holiday and Qantas Business with Jetset Travelworld Ltd, which would require the approval of Jetset shareholders, would leave the airline with 58 per cent of Jetset's listed stock. Qantas posted an interim net profit of $617.6 million for, up from $307.5 million a year earlier.

It reported a pre-tax interim profit of $905 million, up 73 per cent on the previous corresponding period.

Both results were above analysts' expectations and generated a lift in Qantas shares, which closed up 10 cents to $4.45.

"It's an excellent result, no two ways,'" said executive chairman of the Centre for Asia Pacific Aviation Peter Harbison.

Qantas said it was confident of achieving full year profit growth at least 40 per cent higher than last financial year.

The airline said it has not seen a big drop-off in demand in most of its markets due to global economic slowdown, and its domestic and Australian outbound travel remained strong. But the carrier said there had been some softening in the UK and continued weakness in Japan. "We'd be ready to move very quickly if we felt a recession in the US but we're not seeing that so much," Qantas chief executive Geoff Dixon said.

Qantas, which has 68 per cent of Australia's domestic air travel market, carried 6.7 per cent more domestic passengers in the period helping it to post a 6.4 per cent lift in first half sales to $8.1 billion. Chief financial officer Peter Gregg said the company was not concerned about the increased capacity coming into the market. "There is a lot of capacity coming in next year but we believe we can handle it pretty well," Mr Gregg said.

The increase in Qantas' profit came despite higher fuel costs, as the airline's fuel bill for the six months to December 31 fell to $1.71 billion from $1.74 billion in the period a year earlier. Mr Dixon said the strong Australian dollar, fuel surcharges and hedging helped to offset higher fuel prices.

Mr Gregg said the airline would have to increase prices if necessary. "We'll continue to look at it," he said. "Whether it comes in the form of a surcharge or price rises will depend on the circumstances at the time."

Mr Dixon said that delays in the delivery of the Boeing 787 Dreamliner would not hinder the airline's growth. "If the 787 is delayed further it would curtail Jetstar's expansion plans but it doesn't necessarily mean it impacts on their profitability,'' Mr Dixon said.

Qantas' loyalty business, which includes the Qantas frequent flyer (QFF) program, made a pre-tax profit of $61.9 million.
Mr Dixon said the group would be in a position to implement a new ownership structure for QFF by late 2008 if shareholders agreed.

Qantas' freight business made a pre-tax profit of $53.3 million, down from $55.6 million previously. The airline flagged the further expansion of the business in Asia and Australia.

Jetstar quadrupled pre-tax profit to $113 million in the period as it expanded its international network.

The Qantas flying operations made a pre-tax profit of $829.9 million, up from $427.7 million.

Qantas increased its interim dividend to 18 cents, from 15 cents in the previous interim.

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