Qantas has limped back to profit as the airfare price war with Virgin Australia dragged on earnings.
Chief executive Alan Joyce also warned the operating environment for the airline would be challenging and volatile in the 2013/14 financial year, with jet fuel costs to leap up by $160 million in the first half.
Australia's major airline swung to a $5 million full year profit, from a historic $245 million loss in the previous year.
Investors were pleased, with Qantas easily the best performer among the market's top 100 companies on Thursday, climbing 17 cents, or 14 per cent, to $1.40.
However shareholders will not receive a dividend for a fourth consecutive year.
Qantas' return to profitability came on the back of near halving of losses in its international business, to $246 million.
The airline has cut five per cent of costs in the overseas division, as part of $171 million in benefits from cost cutting across the company.
Qantas expects a restructure and partnership with airline Emirates will help bring its international business back into the black by 2015.
But profit from domestic travel fell by 21 per cent from the previous year to $365 million.
Low cost airline Jetstar's earnings also fell, down 32 per cent to $138 million.
Qantas and Virgin have been engaged in a fierce price war for domestic passengers, and Qantas increased domestic capacity by eight per cent last year.
That was effectively two year's worth of growth, according to Mr Joyce, and the cost contributed to the fall in domestic earnings.
"We can now digest that growth and maintain our 65 per cent (market share) profit maximising position," he said, insisting Qantas had also retained its 84 per cent share of the lucrative corporate market.
Mr Joyce said a lower Australian dollar would cause fuel costs to rise, and jet fuel was already a major headwind.
But the lower dollar would ultimately be good for business, encouraging tourists to visit Australia and reducing the cost deficit between Qantas' international arm and its competitors.
Morningstar analyst Nathan Zaia said the result highlighted how important the frequent flyer loyalty program was for Qantas, contributing $260 million in earnings.
Virgin lacks an equivalent program and has forecast a full year loss of between $95 million and $110 million when it reports on Friday.
"Both of them (Qantas and Virgin) at some point have to slow down in capacity growth and accept their positions and let passenger demand fill up the gaps in the extra seats," Mr Zaia told AAP.
