A second ratings agency has downgraded the credit rating of Qantas to below investment grade.
The downgrade by Moody’s follows a similar cut by Standard & Poor’s last month.
The Australian carrier issued a profit warning in December together with 1,000 job cuts amid strong competition in domestic and international markets.
Moody’s said a “sharp deterioration in the company’s core domestic business” was a key reason for the downgrade, the BBC reported.
Profits at Qantas’s domestic operations, the biggest contributor to its growth, fell 21% in the last financial year.
Moody’s cut the airline’s rating to Ba2 from Baa3, adding that the outlook on ratings was “negative”.
Senior vice president Ian Lewis said: “The downgrade to Ba2 reflects a worse than expected impact on Qantas’s credit profile of a marked sharp deterioration in the company’s core domestic business, which has been a key supporting factor of its previous investment grade rating.
“The cause of the deterioration in the operating profile is largely due to the aggressive competitive actions by Qantas’s key domestic competitor, Virgin Australia.
“These actions, which include capacity additions, have shifted the market dynamic against Qantas in a structural way.
“As such, we expect that Qantas’s business risk and financial leverage will remain at elevated levels and inconsistent with an investment grade rating.”
He added: “The material downturn in Qantas’s domestic business also comes at a time when the carrier is grappling with a turnaround in its loss making international mainline business.”
Qantas warned last month that it expects to make losses of up to A$300 million in the July-to-December period – the first half of its current financial year.
Australian prime minister Tony Abbott has backed calls for the airline to be “unshackled” from laws that limit foreign ownership to 49%.
Moody’s said that “a form of government support would, depending on form and structure, also potentially provide support for Qantas’s liquidity position and/or credit profile”.
Qantas is to provide an update on its AU$2 billion transformation programme, capital expenditure and structural review in February.
The airline’s chief financial officer Gareth Evans said the Moody’s downgrade was not unexpected and underlined the importance of taking “decisive action” to address an extremely difficult operating environment.
He admitted that earnings conditions have deteriorated rapidly in recent months and the airline faces “some of the most challenging circumstances” in its history, “including an uneven playing field in Australian aviation”.
“We continue to talk to the Australian government about options for resolving this situation,” said Evans.
“For Qantas passengers, we remain absolutely focused on providing the network and service that has earned record customer satisfaction over the past year.”