* Domestic, international capacity to be cut in weak market
* Airline to freeze recruitment, use leave balances
* Estimated coronavirus earnings impact of A$100 mln to A$150 mln
* Carrier raises dividend, to buy back A$150 mln of shares (Recasts, adds shares and executive and analyst comments)
By Jamie Freed
SYDNEY, Feb 20 (Reuters) - Qantas Airways Ltd QAN.AX said on Thursday it will ground the equivalent of 18 planes, freeze recruitment and ask its 30,000 staff to use up annual leave as it grapples with falling demand from Asia due to the coronavirus epidemic.
Shares in the Australian airline jumped 7% after it also reported flat half-year earnings, raised its interim dividend and announced a A$150 million share buyback.
Qantas reported underlying pre-tax profit, its most closely watched measure, of A$771 million ($514.87 million) in the six months ended Dec. 31, down 0.5% from A$775 million a year earlier in a weaker domestic market.
The carrier estimated the coronavirus would result in a A$100 million to A$150 million hit to underlying earnings before interest and tax for the financial year, accounting for capacity adjustments and lower fuel costs.
Chief Executive Alan Joyce said the impact on demand was similar to the Severe Acute Respiratory Syndrome (SARS) epidemic in 2003 and could be managed for at least six months without the need for job cuts.
"We are keeping the capability to have the rebound, keeping the aircraft, keeping the people because we think it will happen eventually," he told reporters, citing a six to eight month impact from SARS.
Capacity cuts of 15% in Asia, 2.3% in the domestic market and 5% between Australia and New Zealand were the equivalent of grounding 18 planes, impacting 700 full-time roles, the airline said.
China, the biggest source for international visitors to Australia was hardest hit, Joyce said. Hong Kong, Singapore and Japan were weak but demand from the United States and United Kingdom was normal, he added.
The fall in international visitors is also hurting demand for domestic flights and those between Australia and New Zealand. Around 8% of Qantas domestic flights are attached to an international ticket, Joyce said.
SHARE SURGE
The airline declared an interim dividend of 13.5 Australian cents per share fully franked, up from 12 Australian cents last year.
"Overall, the 1H20 result was solid, and despite the impact of coronavirus to 2H20 PBT, this is a short term impact and the recent share price weakness accounts for all of this impact without the benefit of lower oil pricing in FY21," Jefferies analyst Anthony Moulder said in a note.
Shares were up around 7% in early trade to A$6.74, a return to levels last seen in late January when the coronavirus epidemic was less widespread.
Joyce said Qantas expects to make a final decision next month on plans to order up to 12 Airbus SE AIR.PA A350-1000 planes capable of the world's longest commercial flights from Sydney to London.
Progress had been made in talks with pilots over a pay deal to fly the ultra long haul planes, Joyce said, a week after the airline said they could be replaced if a deal was not reached. also confirmed it was proceeding with plans for a tender to replace its narrowbody fleet of Boeing (NYSE:BA) Co BA.N 737s and 717s and Fokker jets this year and was still interested in a potential mid-market offering from the U.S. manufacturer. = 1.4975 Australian dollars)