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A Qantas plane - Source: ONE News -
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Qantas Airways Ltd's credit rating has been downgraded by Moody's Investor Service due the carrier's falling profits amid a decline in demand for travel.
Qantas shares fell 7.5 cents, or 4.29 per cent, to $1.675 on Friday after Moody's downgraded its long-term investment grade rating from Baa1 to Baa2 with a stable outlook.
Qantas chief executive Alan Joyce said Moody's confirmation the business was still an investment grade credit rating with a stable outlook affirmed Qantas' strength.
"Qantas is one of the few airlines in the world with an investment grade credit rating and some of our competitors have fallen below this level because they have found it hard to reposition themselves in such a tough economic environment," Mr Joyce said.
Moody's senior analyst Ian Lewis said in a statement that Qantas' credit profile was adversely impacted by relatively high debt and strained profitability and cash flow, putting pressure on the rating at a time of worsening industry fundamentals.
Mr Lewis noted that Qantas had taken a number of measures to mitigate these pressures including capacity reductions, reallocation of routes between Qantas and Jetstar, and the recent equity raising of $500 million.
But he said the sharp fall-off in consumer demand for air travel, as a result of the global economic crisis has outweighed the beneficial effect of these actions.
Qantas' Mr Joyce said the aviation sector was experiencing a high degree of volatility worldwide, and Qantas has had to confront that.
Mr Joyce said Qantas had increased its focus on earnings preservation and conservative cash management, while being careful to continue its strategy of restoring core brand strengths in quality product, operational performance and safety.
This month, Qantas posted a 66 per cent fall in first half net profit to $210 million, compared to the prior first half.
The carrier has recently reduced capacity, reallocated routes between brands, Qantas and Jetstar, and has undertaken an equity raising of $500 million.
