This article appeared in Yield matters on 01 March 2016
- Airline carried speculative-grade rating for more than 2 years
- Move follows decision by S&P to return investment-grade rating
Qantas Airways Ltd.âs credit rating has been upgraded by Moodyâs Investors Service, ending the Australian carrierâs more than two-year spell as a junk-rated credit.
The Sydney-based airline, helped by the plunge in fuel prices, was raised one level to Baa3 by Moodyâs, which had stripped it of investment-grade status back in January 2014. The move by Moodyâs, which now has a stable outlook on Qantas, rewards Chief Executive Officer Alan Joyceâs efforts to cut debt and return the firm to profitability. It follows a similar decision by Standard & Poorâs in November, which lifted its score to BBB- with a stable outlook.
Qantas last week posted a record first-half profit and announced its second capital return in less than six months. Its situation has been bolstered by a cost-cutting initiative thatâs so far saved about A$1.4 billion ($1 billion) out of a targeted A$2 billion, a collapse in global energy prices and a dialing back of competition with Virgin Australia Holdings Ltd.
The revised rating âis based on the significant reduction in leverage,â Moodyâs analyst Ian Chitterer wrote in a report, citing the role of both lower fuel costs and Joyceâs program. âOur upgrade also reflects Qantasâ commitment to maintain a prudent and conservative financial framework that includes prioritizing return on invested capital and maintaining an optimum capital structure for growth and shareholder returns.â