By Jamie Freed

SYDNEY (Reuters) -Qantas Airways Ltd on Thursday posted a steeper A$1.28 billion ($925.57 million) first-half underlying loss before tax during a period hard-hit by domestic and international border closures but said the outlook was improving as restrictions eased.

The underlying loss before tax in the six months ended Dec. 31, the airline’s most closely watched financial measure, was bigger than a A$1.03 billion loss a year earlier.

The airline also reported a loss before interest, tax, depreciation and amortisation of A$245 million, slightly better than its December forecast of a A$250 million to A$300 million loss.

Qantas had to scale back domestic and international capacity plans by around one-third after the Omicron variant of COVID-19 emerged, leading to record case numbers in Australia and lower than expected travel demand.

The airline said demand had strengthened in recent weeks, but it forecast a A$650 million hit to second-half earnings before interest and tax due to Omicron.

Qantas said it would run 68% of its pre-COVID-19 domestic capacity in the third quarter, rising to 90% to 100% in the fourth quarter. International capacity would be around 22% of pre-COVID-19 levels in the third quarter, doubling to 44% in the fourth quarter, the airline added.

“Demand has started to recover as Australia adjusts to truly living with COVID,” Qantas Chief Executive Alan Joyce said in a statement. “We’re seeing good leisure demand into the fourth quarter. We’ve also seen a sharp uptick in international ticket sales in the past few weeks.”

Australia on Monday opened its borders to fully vaccinated travellers from all countries, the last step in a staged border opening that began in November.

($1 = 1.3829 Australian dollars)

(Reporting by Jamie Freed; Editing by Sandra Maler)