Australia, NZ airlines less vulnerable vs global peers


  • Aviation
  • Thursday, 06 Feb 2020

Moody's Investors Service said in a new report on Thursday the ongoing spread of the coronavirus was “credit negative” for Australian and New Zealand airlines, but their strong domestic franchises and healthy credit metrics leave them less vulnerable than many global peers.

KUALA LUMPUR: The Australian and New Zealand airlines are less vulnerable to the fallout from the novel coronavirus, where the number of dealths in mainland China jumped by 73 to 563 on Thursday, when compared with many global peers.

Moody's Investors Service said in a new report on Thursday the ongoing spread of the coronavirus was “credit negative” for Australian and New Zealand airlines, but their strong domestic franchises and healthy credit metrics leave them less vulnerable than many global peers.

"The Australia and New Zealand airlines earn the vast majority of their EBIT (earnings before interest and tax) from their domestic businesses, which will help mitigate the effect of weaker international travel in the coming months,"

according to a Moody's vice president and senior credit officer Ian Chitterer.

"The airlines also benefit from other characteristics, including their loyalty programs, which are unrelated to airline earnings, good levels of cash, manageable short-term debt, and for Qantas, significant unencumbered aircraft," he said.

Moody's pointed out that all three rated airlines – Qantas Airways Ltd (Baa2 stable), Virgin Australia Holdings Limited (B2 stable) and Air New Zealand Limited (Baa2 stable) – maintain loyalty programmess that account for a meaningful share of their EBIT and provide stable earnings streams.

This sets these airlines apart from many of their global peers, which rely more heavily on earnings from international flights.

However, the reduction in international visitors will somewhat weigh on domestic profitability, with visitors often on average taking two domestic flights during their travels.

“As the situation evolves, Moody's expects airlines will also take some countermeasures to defend profitability.

For example, they will reduce capacity in line with the fall in demand, and may postpone growth capital spending or reassess shareholder payments. Lower oil prices will support airline profitability and enable the airlines to extend their hedges at favourable rates, ” it said.


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