Air NZ gets credit rating upgrade

Air NZ gets credit rating upgrade

Moody’s Investors Service has upgraded Air New Zealand’s credit rating by a notch.

The Auckland-based airline’s rating was raised to Baa2 from Baa3 on Friday, with the rating agency maintaining a stable outlook.

Moody’s changed its approach capitalising operating leases which led to a reduction in Air NZ’s adjusted debt, and anticipates lower jet fuel prices and strong demand will underpin the airline’s earnings over the next 12 to 24 months, it said.

“The upgrade also reflects Air New Zealand’s strong operating performance of the last 12 to 24 months, and our expectations that the company’s capacity growth and strong cost control measures will lead to improving margins for the carrier over the next 12 to 18 months,” Moody’s senior credit officer Matthew Moore said.

“Moody’s expects operating and cost improvements to result in Ebitda (earnings before interest, tax, depreciation and amortisation) margins improving to around 25 per cent versus the around 22 per cent achieved for the last 12 months to December 2014.”

In June, Air NZ said it expects to report normalised pre-tax earnings of between $NZ520 million ($A463.69 million) and $NZ530 million in the 12 months ended June 30, up from $NZ332 million a year earlier.

The airline’s first-half result was bolstered by cheap fuel and increased passenger numbers, a trend that carried on into the second half of the financial year.

Moody’s said Air NZ’s business model was unique among global carriers in that its domestic market share of about 80 per cent was more than any other major carrier.

The rating agency said the rating could face downward pressure if there was a substantial increase in competition or if the airline’s earnings deteriorate due to more expensive fuel or dwindling demand.

Qantas Airways’ subsidiary Jetstar plans to expand its New Zealand offering with at least four new regional routes later in 2015, and Air NZ has responded by saying it won’t be undercut on pricing.

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