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S&P: Airline profiles vary
Standard & Poor's said in a report that leading global airlines have similar market positions, but their financial profiles are widely different.
To understand better why certain air carriers are able to stand out from their peers the agency compared and contrasted six such airlines, two each from North America, Europe and the Asia-Pacific region: AMR Corp. (B/stable/B-3), British Airways plc (BB+/positive), Deutsche Lufthansa AG (BBB/stable/A-2), Japan Airlines Corp. (B+/negative), Qantas Airways Ltd. (BBB+/Watch negative/A-2) and UAL Corp. B/stable).
According to the agency, the airlines face dangerous crosswinds, ranging from increasing price competition to high fuel costs.
The industry is relatively fragmented, with no single airline accounting for more than several percentage points of total passenger traffic, S&P said, adding that, still, some air carriers have extensive route networks and major shares in selected markets that support a respectable business profile.
Among those global airlines, the main differentiating credit factor is their financial profiles, which range from solid to highly leveraged, the agency said.
"Qantas, Lufthansa and British Airways have relatively strong financial profiles, built on their solid positions on profitable international routes, while AMR, Japan Airlines and UAL carry heavy debt loads and, in the case of the U.S. carriers, face fierce competition in their home markets," said S&P credit analyst Philip Baggaley.
"Qantas' investment-grade rating is at risk, however, given a proposed leveraged buyout by private equity, while AMR and UAL are benefiting from much improved earnings recently."
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