Qantas said it will focus on repaying $1 billion of debt rather than doling out dividends or ordering new aircraft for its international unit after reporting a remarkable turnaround in its fortunes in the December half.

The airline's shares rallied after it revealed that it now expects to report a pre-tax underlying profit of $300 million to $350 million in the first half, which would be the best result since 2010.

It's a stark contrast to 12 months ago, when Qantas had asked the government to provide it with a guarantee on its debt and in August, it reported a $646 million pre-tax full-year underlying loss.

All operating segments, including its ailing international business, are expected to be profitable in the first half at an underlying earnings before interest and tax level.

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The improvement is driven largely by the airline's cost cutting program but also benefits from other factors including the end of a capacity war with Virgin Australia, the removal of the carbon tax, lower depreciation charges and a lower fuel bill.

Qantas shares climbed 14.3 per cent  to $2.40 as of 3:15 pm on Monday. The airline's market value has more than doubled in the last 12 months.

Qantas chief Alan Joyce said the early results of the airline's $2 billion cost-cutting program, which includes 5000 job loses, had proven encouraging.

"It is clear from these numbers that without the transformation program Qantas wouldn't be reporting a profit in the first half of this year," he said, referring to a $350 million benefit from the cost cuts in the first half. For the full year, Qantas is expected to benefit from at least $650 million of cost cuts.

Qantas has also raised its forecast for how much it stands to benefit from lower fuel prices in the first half to $30 million, from $20 million previously, with the expectation that could rise significantly in the second half.

Mr Joyce had previously ruled out buying new aircraft, such as the 50 787-9 it holds options and purchase rights over, until its international division returned to profitability.

But he said despite the forecast of a first-half profit, it was too early to make such investments or to pay the first dividends to shareholders since 2009.

"We are just coming through one of the most difficult periods we've had with last year's results," he said. "We are seeing good progress being made but there is a long way to go. We have other targets we want to achieve this year."

He said those targets included repaying $1 billion of debt to strengthen the airline's balance sheet. Qantas last year was stripped of its investment-grade credit rating.

The new guidance from Qantas was ahead of analyst expectations. Citi had expected the airline to report a first-half pretax underlying profit of $136.4 million before the latest guidance was given, while Macquarie Equities had forecast a $200 million pre-tax underlying profit.

"Today's updated guidance is well ahead of our estimate and likely well ahead of consensus estimates," Macquarie said on Monday.

Mr Joyce said Qantas was not yet willing to provide guidance for its full-year profits. The second-half results are typically $100 million to $200 million weaker than the first half due to the seasonality of the business, but this year, Qantas might receive a large benefit from lower fuel prices in the second half.

Despite that, Mr Joyce said it was too early to remove fuel surcharges on international fares.

"The international fuel surcharges don't cover the cost of fuel in international," he said. "Our fuel bill in international this year will be around $2 billion. Our fuel surcharge will only cover $1 billion or less than that."

Mr Joyce said ticket demand remained weak, but the lack of capacity growth from rivals in both the domestic and international markets was positive for Qantas.

"We have seen the alleviation of the competitive dynamic," he said. "A lot of the competition is losing a lot of money and as a result of that, capacity is coming back to more normal levels."

Qantas will announce its first-half results on February 26.