Qantas credit outlook upgraded
The credit rating outlook for Qantas has been upgraded for the first time since Standard & Poor’s reduced the rating to junk status.
The ratings agency expects Qantas to maintain its market dominance over Virgin Australia, while reaping the benefits of sharp falls in oil prices and the Australian dollar.
Standard & Poor’s has maintained the BB+ credit rating it placed on Qantas in December 2013, leaving it in the junk zone, but upgraded its outlook from negative to stable.
“We expect Qantas to maintain a dominant position within the domestic market and really, the BB+ stable credit rating largely rests on that assumption,” S&P credit analyst Graeme Ferguson said.
A sharp drop in oil prices to six year lows would improve operating margins within Qantas’ domestic operations and help it recover its credit metrics at a faster pace than previously thought, he said.
An Australian dollar worth less than 80 US cents would also make its international services more competitive.
“We don’t forecast a demand-led recovery, however we do believe that lower fuel prices, the more benign domestic market conditions and the low Australian dollar should translate through to improved credit metrics for the airline,” Mr Ferguson said.
S&P is expected to maintain its outlook for the next 12 to 18 months but Mr Ferguson said a medium to longer-term upward revision would be considered “if there were evidence that Qantas had a more robust and versatile operating platform”.
He didn’t say when Qantas would return to investment grade, but an improvement in the operating funds to debt ratio could see its outlook raised to positive.
Rival credit ratings agency Moody’s also has Qantas below investment grade.
Qantas shares gained two cents to $2.61.
Email the Travel Weekly team at traveldesk@travelweekly.com.au
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