Moody’s upgrades TAP ratings, outlook ‘positive’
Upgrade reflects, according to the agency, "the strong improvement in the company's operating profitability since the last upgrade in April 2022 and the concomitant improvement in credit metrics".
Moody’s upgraded several of TAP’s ratings on Tuesday, improving the company’s outlook to positive after an increase in profitability since the last review in April last year.
In a statement released today, the rating agency announced that it had upgraded TAP’s corporate family ratings (CFR) to B2 from B3 and the probability of default to B2-PD from B3-PD. Likewise, the rating on the company’s €375 million bond issue was also raised to B2 from B3.
At the same time, the base credit rating improved from caa1 to b3.
This upgrade reflects, according to the agency, “the strong improvement in the company’s operating profitability since the last upgrade in April 2022 and the concomitant improvement in credit metrics”.
TAP’s strong 2022 performance was pushed by its leisure customer base and its exposure to North Atlantic and Brazil routes, “which were two routes to the fore” that year.
Moody’s highlighted the improvements in the Available Seat-Kilometers (ASK) and load factor indicators, which stood at 87% and 80%, respectively, of the 2019 figure.
Revenue per ASK was 21% above 2019 figures and “cost control” was also praised by the rating agency, which noted that the cost per ASK fell almost 2% compared to 2019 without the cost of fuel. EBIT margin, meanwhile, was 8.5%, “well above the 2.9% margin in 2019”.
For this year, Moody’s estimates that TAP “should continue to benefit from favourable market conditions in 2023”.
“Despite inflationary and weakening economic environments, the recovery in passenger traffic should continue. Booking trends remain positive in both volume and profitability,” the agency said, noting that “along with the rest of the industry, TAP continues to experience a robust pricing environment” that allows it to overcome high fuel costs.
Moody’s bases the upgrade of the CFR rating to B2 on three factors: the strategic location in Lisbon and its market share, cost structures that are competitive with other European airlines with lower staff costs and several exclusive routes between Europe and Brazil.
Among the reasons for building the rating, Moody’s notes the small size of the fleet, volatile and historically weak performance – even after partial privatisation in 2015 – or low pre-pandemic profitability.
TAP made a €65.6 million profit in 2022, the company said in March, which returned to positive results after losses of €1.6 billion in 2021 and ahead of the restructuring plan.
