S&Ps cuts Qantas Airways rating

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S&Ps cuts Qantas Airways rating

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The decision came a day after the struggling carrier announced a global alliance with Emirates.

07 September,2012 11:14 am

Australias Qantas Airways was hit with a credit downgrade Friday after posting huge losses at its international arm, a day after announcing a tie-up with Emirates aimed turning its fortunes around.Standard & Poors said in a statement it had cut Qantas from BBB to BBB- with a stable outlook, adding: The downgrade is driven by our view that Qantas business risk profile has weakened, because of the structural pressures affecting the airlines international business.S&P indicated in June it would put the Flying Kangaroo on credit watch with negative implications after the airline warned its of a full-year loss for the fiscal year.In August the carrier posted its first annual loss since privatisation in 1995, falling Aus$244 million (US$256 million) into the red, a massive reverse from a net profit of Aus$250 million in the previous 12 months.Of that its international arm lost Aus$450 million, while record high fuel costs were also a big contributor. The decision came a day after the struggling carrier announced a major global alliance with Emirates that will see its hub for European flights shift to Dubai from Singapore in a bid to stop losses.S&P said the Emirates deal was a positive development, but its benefits would not be immediate. In our opinion, notwithstanding the potential flow-on benefits of the partnership to its Asian routes through better scheduling, it may be more difficult for Qantas to resolve the structural issue affecting these routes, S&P analyst May Zhong said.Qantas is one of small number of airlines rated investment grade by S&P and fellow agency Moodys but its strong domestic arm has not been able to make up for the international sides woeful performance.Qantas confirmed the downgrade, which comes as it battles high fuel prices, strong competition and difficult operating conditions.S&Ps change to a stable outlook highlights the inflection point now reached by Qantas as its international turnaround strategy is delivered, the airline said in a statement.The 10-year tie-up with Emirates is part of Qantass drive to turn around its fortunes after last months dismal figures. Subject to regulatory approval, the deal goes beyond codesharing to include coordinated pricing, sales and scheduling and a benefit-sharing model, although neither airline will take equity in the other.