(Reuters) -Australian flag carrier Qantas Airways ( QUBSF ) on Friday lifted revenue expectations from its domestic operations for the first half of the financial year, while forecasting lower fuel costs after a drop in global prices.

The airline is now expecting revenue per available seat kilometre for its local business to increase by 3% to 5% for the first half ended Dec. 31 compared to a year ago, up from the 2% to 4% range it provided in August.

Qantas' low-cost airline Jetstar's revenue was better than previous estimates, the firm said, reflecting better-than-expected travel demand.

"Qantas Domestic's load factors and demand for corporate travel continue to improve year on year," the carrier added on Friday, referring to its main brand.

Domestic capacity is expected to rise by 1% in the first half, it said, down from its August forecast of a 2% rise.

Qantas shares reached a record high this week after Jefferies analysts hiked their price target on the back of low fuel costs and expectations of a dividend payment. Under CEO Vanessa Hudson the flag carrier is working to rebuild a reputation that was battered over the last 18 months amid legal, regulatory and customer issues.

It will hold its annual meeting later on Friday.

The airline is now expecting first-half jet fuel costs of about A$2.55 billion ($1.69 billion), lower than the A$2.7 billion it had estimated earlier.

Qantas' current fuel cost estimate is on the basis of current jet fuel price of A$140 a barrel, lower than A$150 when it was previously estimated.

The firm said its A$400 million share buyback was currently 45% complete at an average price of A$7.23. The airline anticipates its finalisation by the end of the year.

Trading at Qantas' loyalty programme was in line with expectations, the company said, following the launch of a new flight rewards scheme.

The loyalty division continues to expect at least 10% growth in underlying earnings before interest and taxes in the current financial year, Qantas said.

($1 = 1.5060 Australian dollars)