July 1 (Bloomberg) -- Qantas Airways Ltd., Australia's largest carrier, said it may sell part of its frequent flyer business in an initial share sale, sending the airline's stock to its biggest gain in more than a year.

Qantas will decide by August whether to sell as much as 40 percent of the unit, which generates revenue by selling air miles to credit card providers and other companies, Chief Executive Officer Geoff Dixon said. The carrier said today its 5 million frequent flyers will be able to book any seats on its services and those operated by low-fare unit Jetstar Airways Pty.

A sale of the mileage unit, worth at least A$2 billion ($1.9 billion) according to JPMorgan Chase & Co., could boost earnings at the Sydney-based carrier. The plan comes after Qantas eliminated routes and grounded some planes to cut costs as jet- fuel prices more than doubled in the past year.

``They are changing their redemption rules and that is probably done with the partial sale of frequent-flyer program in mind,'' said Matt Crowe, an analyst at JPMorgan. ``By making it a lot easier for the customers to redeem their points, this will probably boost reported earnings.''

The airline hired UBS AG, Citigroup Inc. and Macquarie Group to advise it, according to the statement.

Qantas jumped 6.6 percent to close at A$3.24 in Sydney trading, the biggest advance since Nov. 22, 2006. Today's gains narrows losses to 40 percent since May 4, 2007, when an A$11.1 billion buyout offer for the airline failed.

Air Canada

Airlines make money by selling points to partners such as credit card companies, hotels and retailers. The companies in turn reward customers with mileage points when they make purchases or use the services.

Carriers would gain cash from any sale and could still reap profits by keeping stakes while the loyalty plans expand. Mileage programs could move outside the air-travel industry, adding retail partners and luring more members.

Air Canada's parent ACE Aviation Holdings Inc. sold a stake in its Aeroplan customer-rewards program in 2005. Groupe Aeroplan Inc. is worth more than four times the value of Air Canada.

``We will keep control,'' Dixon said at a press conference in Sydney today. ``Under any sale process it's the frequent flyer program that's being sold. The loyalty content of it -- that is the lounges, how we recognize our most important customers -- would stay with the airline proper.''

Qantas may post net income of A$144 million from its loyalty program in the year ending June 2009, up from A$82 million in fiscal 2008, Crowe estimated.

The carrier's frequent-flyer program posted a profit before tax of A$62 million in the half year ended December 2007, on sales of A$399 million, according to the company's Web site.

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net; Chan Sue Ling in Singapore slchan@bloomberg.net

Last Updated: July 1, 2008 04:07 EDT