SYDNEY (Reuters) -Australia's Qantas Airways agreed to pay A$120 million ($79 million) to settle a regulator lawsuit over the sale of thousands of tickets on already cancelled flights, in an attempt to end a reputational crisis that has engulfed the airline.

The company will split A$20 million between more than 86,000 customers who booked tickets on the so-called "ghost flights" and pay a A$100 million fine instead of defending the lawsuit that it had previously vowed to fight, Qantas and the Australian Competition and Consumer Commission (ACCC) said on Monday.

The fine is the biggest ever for an Australian airline and among the largest globally in the sector, although some Australian banks and casino operators have faced higher penalties for breaches of the law.

"We recognise Qantas let down customers and fell short of our own standards," CEO Vanessa Hudson said in a statement.

The settlement "means we can compensate affected customers much sooner than if the case had continued in the Federal Court", added Hudson, who started her role in September, noting the court still must sign off on the settlement.

If the court approves, the settlement will resolve a dispute that had featured prominently at a time when Qantas's brand value tanked in consumer surveys amid a spike in complaints about cancellations. After the ACCC filed its lawsuit last August, Hudson's longserving predecessor, Alan Joyce, brought forward his retirement.

"This penalty ... will send a strong deterrence message to other companies," ACCC Chair Gina Cass-Gottlieb said in a statement.

The payout, however, would pale against the A$1.47 billion net profit that analysts on average forecast Qantas to report in the year to end-June, according to LSEG data. People who bought tickets on non-existent domestic flights would get A$225 and people with international fares would get A$450, on top of a refund, the airline and regulator said.

Qantas shares were trading 0.3% higher by mid-session, in line with the broader Australian market.

"We see today's outcome as incremental positive, removing another post-COVID brand and valuation overhang from the stock," RBC Capital Markets analyst Owen Birrell said in a client note.

Qantas is still waiting to learn how much it must pay nearly 1,700 ground handling staff it sacked in 2020 after a court found the job cuts were illegal since they were intended to stop industrial action.

The ACCC lawsuit centred on the months after Australia's border reopened in 2022 following two years of COVID restrictions, and airline cancellations and lost luggage complaints spiked globally amid staffing shortages.

Qantas had argued that it faced similar challenges to airlines around the world, but the ACCC said its actions broke consumer law. It had said the airline sometimes sold tickets to flights weeks after they were cancelled.

The ACCC's Cass-Gottlieb noted that the settlement included a promise from Qantas not to repeat the conduct.

($1 = 1.5124 Australian dollars)