“The downgrade is driven by our view that Qantas’ business risk profile has weakened because of the structural pressures affecting the airline’s international business,” S&P credit analyst, May Zhong, said in a statement.
Zhong said Thursday’s Qantas announcement of a tie-up with Emirates was a positive development to improve Qantas’ profitability and reverse the decline of its market share on European routes.
“However, material benefits from the partnership may take some time to eventuate due to the magnitude of Qantas’ losses over the past few years and the increasing industry risk,” Zhong said.
S&P had placed Qantas on negative credit watch on June 7.
On Thursday, Qantas unveiled a 10-year partnership with the Emirates involving an extensive code-sharing arrangement, reciprocal frequent-flyer benefits and joint marketing, pricing and coordination on certain routes.
The alliance, which requires Australian Competition and Consumer Commission approval, is regarded as a key plank to turn around the airline’s struggling international operations, which reported a $450 million loss in 2011/12, the Australian Associated Press said.