Qantas downgraded to ‘junk’ status by ratings agency S&P

Embattled Australian carrier Qantas’ credit rating was downgraded by Standard & Poor’s to “junk” status on Friday after the airline issued a shock profit warning and slashed jobs.

Qantas on Thursday flagged a half-year loss of up to A$300 million (US$271 million) and said it would axe 1,000 jobs as it struggles under the weight of record fuel costs and fierce competition from subsidised rivals.

In response, S&P cut the airline’s rating from BBB-, the lowest investment grade, to BB+ and placed it on a creditwatch with negative implications. Qantas shares closed 3.74 per cent lower at A$1.03, having lost more than 10 per cent on Thursday.

The rating puts Qantas in what is known as “junk” status among professional investors, increasing the cost of financing for the carrier and restricting access for investors that do not put their money in lower rated companies.

“The downgrades reflect our view that intense competition in the airline industry has weakened Qantas’ business risk profile to ‘fair’ from ‘satisfactory’, and financial risk profile to ‘significant’ from ‘intermediate’,” S&P said in a statement.

“We don’t expect Qantas to recover to a credit profile commensurate with a ‘BBB-’ rating in the near term.”