t's not quite clear why Qantas shares rose strongly yesterday.

After all the airline confirmed what analysts have been warning for a month, that the industrial action and airline grounding in late October and early last month would cut earnings.

And, that's what Qantas Airways warned yesterday in a statement to the ASX.

It said it expects to report an underlying profit before tax between $140 million and $190 million in the six months to December with strikes by workforce, the grounding of the fleet and high fuel bills costing it more than $650 million.

That contrasts with Virgin Australia's news last week that it had earned a first quarter profit. However Virgin said it could not give guidance for the half year or the full financial year because of the volatile markets outlook.

The underlying figure is 50% - 66% or more lower than the $417 million earned in the first six months of the 2010-11 financial year.

"The group's first-half performance reflects a challenging operating environment, with uncertainty in global economic conditions, elevated fuel prices and volatile foreign exchange rates," Qantas said in the statement.

The news, and other commentary about the airline still pursuing the idea of a premium airline in Asia, saw the shares jump 5c to 1.505, a rise of more than 3%.

But the wider market was much stronger yesterday and ended up nearly 2% on reports that the eurozone might get its act together.

That news bolstered the overall market and banks and resource companies in particular.

Qantas shares were caught in the up draught, even though the profit downgrade was weak news.

Qantas said the impact includes the cost of industrial action prior to the grounding, the direct impact of the grounding on revenues, the impact on forward bookings and the cost of customer recovery initiatives.

And the airline warned that the outlook for the second half of the year remains too difficult to provide specific guidance.

"The outlook for the second half of FY12 remains volatile and given the uncertainty in global economic condition, fuel prices and foreign exchange rates, it is not possible to provide further guidance at this time," the company said in a statement.

Traffic volumes across the entire airline for October fell 1.8% and included an 11% fall at Qantas domestic and 3.6% fall at Qantas international.

They were the two businesses directly hit by the industrial action and then the temporary grounding.

Domestic volumes at low-cost offshoot Jetstar, which wasn't targeted by strikes, jumped 7.9%.

Qantas grounded its entire domestic and international fleet on Saturday October 29, forcing Fair Work Australia to intervene a few days later to terminate all legally-protected industrial action against the airline.

Qantas's revenue seat factor in October fell 1.1 percentage points to 81.4%. It only fell 0.6 percentage points at Qantas domestic, partly owing to capacity cuts in response to the strike action.

Separately, the carrier says it has made no decision on its plans to set up an Asian carrier and talks were still on with Singapore and Malaysia, a spokesman said responding to a media report that plans for such a business had been dropped.

CEO Alan Joyce said in the statement that customers had returned since Fair Work Australia put an end to any further industrial action, with a "strong, quick recovery in forward bookings".

"We have seen customers return to Qantas," Mr Joyce said.

"Domestic bookings, including from corporate accounts, have recovered particularly well and are now back to normal levels.

"International bookings for the period up to January have also recovered, but at a slower rate because of the longer lead times associated with international travel."

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