Moody's downgrades Qantas to 'junk'

Embattled Australian carrier Qantas faces a further increase in its borrowing costs after Moody's downgraded its credit rating to "junk" status Thursday, just weeks after Standard and Poor's took the same action.

Moody's cited "a sharp deterioration in the company's core domestic business" following the airline issuing a shock profit warning and slashing jobs in December.

In cutting Qantas's rating to Ba2, or junk status, from Baa3, Moody's senior vice president Ian Lewis blamed aggressive competition from domestic rival Virgin Australia.

"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", he said.

"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 Holdings."

S&P last month cut the airline's rating from BBB-, the lowest investment grade, to BB+ and placing it on a credit watch with negative implications.

The ratings put 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.

Qantas flagged a half-year loss of up to Aus$300 million (US$267 million) and said it would axe 1,000 jobs as it struggles under the weight of record fuel costs and fierce competition from Virgin.

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