S&P upgrades Qantas rating from 'junk' status

[SYDNEY] Australian carrier Qantas on Tuesday got shot of its "junk" status when Standard & Poor's lifted its rating from 'BB+' to the prized investment grade 'BBB-' as the airline bounces back from a tough few years.

The upgrade of Qantas' long-term corporate credit and issue rating comes after the airline completed a profit turnaround this year, supported by lower fuel prices, and adopted a more conservative financial framework.

"We view this framework to be materially more prudent and creditor-friendly than previously announced policies," S&P credit analyst Graeme Ferguson said in a statement.

"Qantas' revised financial framework is more formal, forward-looking, and preemptive. It places greater emphasis on acting preemptively to protect the balance sheet when the airline anticipates periods of financial stress."

The ratings agency downgraded Qantas to "junk" in December 2013 after the airline issued a shock profit warning and announced job losses as it struggled with record high fuel costs and fierce competition from rivals.

But the carrier roared back into the black in August, posting a stunning turnaround of fortunes driven by aggressive cost-cutting.

It booked a A$557 million (S$561.7 million) annual net profit in the year to June 30, 2015 - a sharp recovery from a net loss of A$2.84 billion in the previous corresponding period.

Qantas chief executive Alan Joyce said the assessment was "a welcome endorsement of the hard work we've been doing".

"Our focus has been getting the business to an optimal capital position and to keep it there throughout the cycle," he said in a statement.

In announcing its annual results in August, Qantas said its cost-cutting programme had helped save A$894 million over the year and allowed it to pay down debt, while lower fuel prices also helped bolster the bottom line.

The reversal in fortunes appeared to vindicate its strategy to slash A$2.0 billion in costs, cut routes, freeze growth at Asian offshoot Jetstar and axe 5,000 jobs to help counter a price war with domestic rival Virgin Australia.

Qantas shares, which have rallied strongly over the past 12 months, jumped 5.35 per cent to A$3.74 on Tuesday in an overall rising market.

AFP