Qantas had nothing to say yesterday about the move by the ratings agency, Moody’s Investors Service to place the airline’s Baa1/P-2 ratings under review for possible downgrade.
The market also took the move in its stride and they closed up 3c at $3.32.
"The review reflects the potential impact on Qantas of the recent rapid rise in the cost of jet fuel – its major operating expense – and the adverse effect on the company should oil prices fail to fall back from their current highs and in the absence of significant offsetting cost reductions by the company," said Moody’s vice-president Ian Lewis said in a statement.
"The ratings were previously on negative outlook due to the airline’s more aggressive financial profile, amid high capex, and the uncertainty generated over the past 18 months due to the possibility of significant structural changes and intensified market competition", said Mr Lewis.
"Cost side pressure, and most critically the cost of fuel, have raised the level of financial risk, and Qantas is in the process of implementing rapid cost and revenue-side initiatives to protect its profit margins," he said.
"These factors together reflect significant challenges for the rating under circumstances where the company was already weakly positioned within its ratings."
The review will focus on the impact of sustained cost-side pressure on Qantas’s current and future financial profile, on Qantas’s ability to offset sustained high oil prices with non-fuel cost reductions, including its ability to increase fares, and on the airline’s ability to respond to these challenges through its future hedging program.
Qantas has cut domestic and international services, warned of staff cuts, plans to take at least half a dozen planes out of service, and has twice lifted airfares domestically and internationally this month.
Its moves are similar to those in the US and Europe from major competitors.
Qantas is expected to report pre tax profits for the 2008 year of more than $1 billion when it reports in August.
