RECENT LUV NEWS ! LUV LOOKS GOOD AFTER S&P UPGRADE!
Thursday April 22, 4:08 pm Eastern Time
BLOCK TRADE - Southwest Airlines 300,000
at 32-15/16, down 2, crossed by ING Barings
Friday April 23, 10:48 am Eastern Time
S&P revises Southwest Airlines Co outlook
(Press release provided by Standard & Poor's)
NEW YORK, April 23 - Standard & Poor's today revised its outlook on Southwest Airlines Co. to positive from stable.
Standard & Poor's also affirmed its single-'A'-minus corporate credit and senior unsecured debt ratings and single-'A' equipment trust certificate ratings on the company.
Approximately $910 million of rated debt is affected.
The outlook revision reflects strong and improving operating performance, declining debt leverage, and competitive success in new markets.
Southwest reported record earnings of $95.8 million in the first quarter of 1999, up 37% versus the first quarter of 1998, a period in which earnings of most U.S. airlines were flat-to-down modestly.
This follows record earnings of $433.4 million in 1998, and the outlook for the remainder of 1999 is positive.
The increase in earnings and cash flow have allowed Southwest to continue gradual deleveraging, despite taking delivery of new aircraft for continued growth.
Lease-adjusted debt-to-capital was 48.6% at Dec. 31, 1998, high relative to comparably rated industrial companies, but the lowest, by far, among large U.S. airlines.
Southwest is expanding successfully into the Northeast, the last major region it does not serve extensively, despite resistance from low-cost units of larger airlines such as Delta Air Lines Inc.'s (triple-'B'-minus/Positive/--) ''Delta Express'' and US Airways Inc.'s (single-'B'-plus/Positive/--) ''MetroJet.''
Southwest maintains a cost advantage over these competing low cost operators and a significant cost advantage over the ''mainline'' operations of these and other large carriers.
The ratings on Southwest reflect its extremely strong position in markets served, very low operating costs, and consistent profitability, even in industry downturns.
The inherent riskiness of the airline industry and the company's moderately high debt leverage are limiting credit factors.
Southwest has a market share of approximately 60% in its top 100 markets, with dominant shares in the intra-California and intra-Texas markets.
The airline's operating costs are among the lowest in the industry, due to high productivity of assets and labor, and ''no frills,'' point-to-point service.
The company operates a relatively young fleet (average age of eight and one half years) of one aircraft type (Boeing 737s), which reduces crew training and maintenance costs.
In addition, the company is aided by its highly motivated work force and good labor relations.
Southwest is the only U.S. airline that has been consistently profitable for 26 years.
Over the past several years, Southwest has faced increased competition in its established markets from carriers such as United Air Lines Inc.'s (double-'B'-plus/Positive/--) shuttle on the West Coast.
Southwest has also faced competition in new markets such as the Northeast to Florida route, where it competes against Delta Express and MetroJet.
Southwest has been expanding on the East Coast and in March 1999 entered the metropolitan New York City market with service from Islip (Long Island).
Despite a relatively high growth rate of its operations, averaging in the low-teens, Southwest's expansion has been highly profitable, resulting in strong earnings and cash flow.
This has allowed Southwest to finance most of its capital spending internally. As a result, Southwest's financial profile, already the strongest in the industry, has continued to strengthen.
In 1998, its lease-adjusted pretax interest coverage was 4.64 times (x), earnings before interest, taxes, depreciation, and amortization coverage was 6.61x, funds from operations to debt was 38.1%, and total debt to capital was 48.6%.
OUTLOOK: POSITIVE
If Southwest continues its profitable growth trend, with improving financial measures, ratings could be raised, Standard & Poor's said. |
