Moody's sets stage for Southwest downgrade

DALLAS (AP) — Moody's Investors Service said Thursday it was putting Southwest Airlines Co. on review for a possible credit downgrade, saying it expects weak travel demand to continue into next year.

Southwest is the only major airline with investment-grade credit ratings.

Moody's said it was putting Southwest's senior unsecured rating, other corporate debt and enhanced equipment trust certificates, or EETCs, on review for possible downgrade. Standard&Poor's took similar action in April.

Downgrades could make it harder and more expensive for Southwest to borrow.

Moody's said it expects weak air travel demand to continue "well into 2010," which will make it challenging for Southwest to produce financial results that justify its current credit ratings. Moody's gives Southwest's senior unsecured debt a rating of Baa1, three steps above non-investment-grade or junk status.

Last week, Southwest launched a short-term sale that included some one-way fares as low as $30 after the peak summer travel season.

Southwest's traffic, measured in miles flown by paying passengers, was down 2.2 percent in the first half of the year compared with the same period of 2008. June traffic was 6.4 percent below year-earlier levels.

Dallas-based Southwest had been profitable every quarter for 17 years but has lost money each of the past three quarters. It is scheduled to release second-quarter results on Tuesday.

Southwest shares were unchanged at $7.07 Thursday.