Air New Zealand Rating Boosted by Moody’s to Same as Southwest

Air New Zealand Ltd. had its credit rating boosted by Moody’s Investors Service as lower fuel prices and favorable demand help the airline even as it faces the prospect of stronger competition.

The Auckland-based carrier had its issuer rating lifted one level to Baa2, two steps above junk, according to a statement from Moody’s. The airline’s credit score was also helped by changes to the way Moody’s looks at the capitalization of operating leases. Its outlook is stable, the credit assessor said.

The upgrade reflects the airline’s “strong operating performance of the last 12-24 months” and “expectations that the company’s capacity growth and strong cost control measures will lead to improving margins,” Moody’s analyst Matthew Moore wrote.

The improved score puts the New Zealand carrier on par with U.S. peer Southwest Airlines Co. as the highest-rated publicly listed airline scored by Moody’s, according to data compiled by Bloomberg. New Zealand’s national carrier reported in February a 20 percent increase in half-year earnings and said it expects a NZ$90 million ($60 million) fillip from lower fuel prices in the second half.

The airline, which has highlighted New Zealand’s links to the Hobbit movies through its plane livery and safety videos, is also expecting seat capacity to increase by 12 percent this year as it introduces new, bigger aircraft.

The majority of airlines around the world that carry credit scores from one or more of the three major ranking firms have speculative grade ratings. Among the exceptions are Ireland’s Ryanair Holdings Plc, which carries scores of BBB+ at Standard & Poor’s and Fitch Ratings, three levels above junk, but is not rated by Moody’s. Southwest’s score of BBB at both S&P and Fitch is in line with its Moody’s grade, while Air New Zealand is only rated by Moody’s.