Qantas has had its credit rating downgraded to below-investment level, or junk, by the ratings agency Standard & Poor’s.
The move by S&P comes after the airline issued a surprise profit warning and announced 1,000 job cuts yesterday.
The downgrade could increase the airline’s borrowing costs and sends a warning to investors, the BBC reported.
The carrier expects to make losses of up to A$300 million (£165 million) in the July-to-December period.
S&P said the rating cut reflected its “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’.”
It lowered the carrier’s rating from the lowest investment grade, BBB-, to BB+.
Moody’s rating agency warned on Thursday that it may also lower the Australian flag carrier’s rating.
Qantas has been hurt by a range of factors in recent times including higher fuel costs, subdued global travel demand and increased competition.
The airline has claimed that Australian ownership rules, which limit total foreign holding of Qantas to 49%, with foreign airlines allowed to own just 35%, have further hurt its growth.
Qantas has argued that limits on its foreign ownership have benefited rival Virgin Australia which has gained investment from Etihad, Singapore Airlines and Air New Zealand.
Last month, the airline backed a suggestion by Australian treasurer Joe Hockey that these rules should be changed.
Qantas has also said it needs government action to help it compete more effectively.
But Australia’s Prime Minister Tony Abbott indicated that the government was unlikely to give Qantas any financial support.
The Australian Broadcasting Corporation quoted him as saying that Qantas had to “get its house in order”.
“That’s what has to happen,” he said. “If we subsidise Qantas, why not subsidise everyone?”
“And if we subsidise everyone, that’s just a bottomless pit into which we will descend.”
Abbott added that while Qantas was an iconic company, it was also a private one, and that it “must run itself competently and profitably.
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