News: REX UPDATE 1-Australia's Qantas to lift domestic capacity, repair finances as state borders...

• Will reach 68% of pre-COVID capacity this month
• Airline to be net free cash flow positive in H2
• International fleet remains grounded until at least July 2021

(Adds CEO comments, international travel details)

SYDNEY, Dec 3 (Reuters) - Qantas Airways Ltd (QAN) said on Thursday the reopening of Australian state borders would boost its financial position and allow it to return to 68% of pre-pandemic domestic capacity this month, rising to nearly 80% in the March quarter.

The airline said it expects to post a substantial bottom line loss for the financial year ending June 30, 2021.

However, Qantas said it would be close to breakeven at the underlying earnings before interest, tax, depreciation and amortisation level in the first half and net free cash flow positive excluding redundancy payments in the second half.

The airline has been lifting domestic capacity as Australian states reopen their borders to each other at a time when only one state, South Australia, has reported any coronavirus cases in the community in recent weeks.

"We've seen a vast improvement in trading conditions over the past month as many more people are finally able to travel domestically again," Qantas Chief Executive Alan Joyce said in a statement.

Qantas had previously said it expected to reach around 60% of pre-COVID domestic capacity by Christmas, before Western Australia this week announced it would open borders to the most populous states, New South Wales and Victoria.

Smaller rival Virgin Australia has forecast it will return to 60% of pre-COVID domestic capacity by January, while Regional Express Holdings Ltd (REX) is planning to flights on the highly competitive Sydney-Melbourne route in March.

Qantas' international fleet remains grounded until at least next July and the airline has flagged it will require international passengers to receive a COVID-19 vaccine in order to travel.

Joyce said Qantas expected it would take years for international travel to fully recover, with the airline carrying the overhead for billions of dollars of aircraft in the meantime.

The airline has cut around 8,500 jobs, or nearly 30% of its workforce, since the pandemic hit and a further 13,500 staff are stood down receiving government benefits.