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Moody's upgrades Southwest Airlines Rating

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HowardBorden

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"The upgrade to Baa2 reflects expectations of further strengthening of the credit metrics, building on the improvements in cash flow, earnings and financial leverage that Southwest has achieved since the end of 2012" said Moody's Senior Credit Officer, Jonathan Root. "Moody's believes that Southwest is better positioned than it has been historically to manage the next cyclical downturn because of its lower funded debt, broader network and improved liquidity," continued Root. Southwest is now the highest rated airline, and Moody's believes the company's credit profile is unlikely to weaken meaningfully as long as the US airlines maintain their uniform focus on earning acceptable returns on capital.

The stable outlook reflects Moody's expectation of sustained demand for US domestic air travel and a continuing focus by Southwest and its peers on earning acceptable returns on capital, which should prevent debilitating, wide-spread battles for market share.

The ratings could be upgraded if Southwest is able to sustain credit metrics above the medians of the Baa1 rating category while it grows its network, which will increase ASMs but not necessarily the fleet. Stronger metrics than the Baa1 medians is appropriate for a higher rating given the industry's exposure to the economic cycle.

A ratings downgrade could occur if the company was to lose market share, measured as a meaningful decline in revenue passengers boarded during a period when boarded passengers at its US peers grows. Cost pressures, such as terms of still to be negotiated labor contracts that result in higher labor costs that lead to a more than 2.5% decline in operating margin could also pressure the rating.

Southwest Airlines Co., based in Dallas, Texas, is a leading low-cost airline in the United States, and the 4th largest airline overall measured by revenue passenger miles. Based on the most recent data available from the U.S. Department of Transportation, Southwest is also the largest carrier in the United States measured by domestic onboard passengers and scheduled domestic departures. The company reported revenue of $18.15 billion for the twelve months ended June 30, 2014.

https://www.moodys.com/research/Moo...ines-sr-uns-to-Baa2-outlook-stable--PR_305474
 
that sounds good to me
 

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