Qantas debt isn't junk any more

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Moody’s Investors Service has upgraded Qantas, ending the airline’s two years as junk-rated credit.

The agency moved Qantas to an investment grade Baa3 from Ba1 following the airline’s most recent results, posting a 239% increase in half year profit to $688 million.

“The upgrade of the senior unsecured rating to Baa3 is based on the significant reduction in leverage since 2015, on the back of lower fuel prices and continued success of its transformation program as well as a reduction in debt by $A1 billion,” says Ian Chitterer, a Moody’s senior analyst.

Moody’s says the substantial fall in fuel prices is expected to reduce the fuel charge by more than $1 billion in 2016 compared to 2014.

This will support a significant overall earnings improvement for the full year.

“Another important driver of earnings improvement is Qantas’ considerable progress on its transformation and cost saving initiatives,” Moody’s says.

The company has achieved $1.36 billion of its $2 billion cost savings of target to be realized by 2017.

Qantas is also benefiting from an end of a seat war with Virgin Australia, meaning better profit margins per customer.

Qantas shares are trading at $3.895, up 0.65%.

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