Australia's national airline Qantas expects to return to profit in the three months to September, despite continued strong competition in the market.

During August, Qantas reported a full-year loss of A$2.84 billion (£1.55 billion) that included a massive writedown on the value of its fleet.

Fierce competition and weak demand have taken their toll on the carrier, which has been engaged in a price war with rival Virgin Australia. This has led both carriers to sustain significant losses.

In August, Qantas said it expected domestic capacity growth of just one per cent in its fiscal first half through December and now expects zero capacity growth. Despite the poor economic climate, the airline said yields on ticket prices in September were higher than a year earlier.

"We will continue to manage capacity with a careful eye on demand and we will always retain the flexibility to ensure that our competitive advantages are never jeopardised," said Qantas chief executive Alan Joyce.