Pent-up demand and Australia’s high vaccination rates have seen credit rating agency Moody’s lift its outlook for Qantas from “negative” to “stable” for the first time since 2020.
Moody’s said far more favourable operating conditions would allow the airline to de-leverage its balance sheet through to the 2023 financial year, and it predicted growth in Qantas’ loyalty and freight arms to continue.
The rating was issued the day before the Easter break started and the emergence operational challenges seen at airports (especially Sydney) over the long weekend.
Moody’s said the latest “rating action reflects Moody’s view that Qantas is well positioned to restore its credit profile over the next 12-18 months, given that over 95% of Australians over the age of 16 are fully vaccinated, all domestic borders are open, and international borders are continuing to open.”
Moody’s said that it expects that by the end of the 2023 financial year “the airline’s net debt/EBITDA will be back below the threshold set for its rating of 2.5x and its gross debt/EBITDA will be back below its threshold of 3x.”
“This significant leverage reduction will result from its EBITDA normalizing as domestic capacity increases during fiscal 2023 to over 100% of pre-pandemic levels. International flights will continue to ramp up gradually as borders reopen and loosening travel restrictions make international travel less administratively onerous, thereby supporting pent-up demand.
“Moody’s expects ongoing growth in Loyalty and Freight, material structural cost improvements, and domestic market share growth after Virgin Australia Group (Virgin) announced it would discontinue the Tigerair Australia brand and reduce its fleet size.”
This leaves Qantas very well positioned, considering the current positive outlook for the resumption of travel, Moody’s pointed out.
The airline’s available liquidity as of December 31, 2021 included cash of $US2.7 billion and $US1.6 billion in committed undrawn facilities. An additional $US2.4 billion in unencumbered assets is available if needed, although this is not Moody’s expectation.
Moody’s said it was maintaining Qantas’ Baa2 issuer, senior unsecured debt and backed senior unsecured bank credit facility ratings, as well as the (P)Baa2 senior unsecured credit rating on its MTN program.That rating was reaffirmed last December, but with a negative outlook.
The agency said the new stable outlook “reflects the rating agency’s expectation that Qantas’ leverage will revert to and be maintained within the range set for its rating.”
