WASHINGTON — A planned merger between Southwest Airlines and AirTran Airways is expected to put more stress on U.S. airports, especially those that rely on either or both of the discount carriers for bond-related revenue, Moody's Investors Service warned in a report this week.
The rating agency has a negative outlook on the U.S. airport sector because of the poor economy and lackluster air travel activity.
For the airlines, Moody's has rated Southwest's long-term corporate credit at Baa3 with a stable outlook, and AirTran's at Caa1 under review.
The merger could affect airline service, which provides various fees, such as passenger facility charges, a major revenue source for airport debt service.
Southwest's announced plan to buy AirTran does not change the airport sector's negative outlook, nor does it immediately change the underlying ratings of airports, according to Moody's senior analyst Kurt Krummenacker.
However, "it's another incremental stress to the U.S. airport system," he said.
It "will tend to push fares higher and total passenger levels lower … just by reducing the amount of choice in the system and the number of seats that will be available," Krummenacker said.
Moody's said the merger could increase the possibility that the airlines will cut flights to save money.
However, the effects could be mild because the carriers have "fairly complementary" routes and probably will not cut service dramatically even where they overlap, the agency said.
"Unlike other mergers, this merger doesn't necessarily present a credit concern for any particular airport," Krummenacker said. "We don't expect that there is a material credit impact at any single airport, but we'll continue to monitor" their credit profiles, he said.
The report showed that Chicago's Midway Airport and Dallas Love Field host a large amount of traffic from Southwest, so they are "highly susceptible" to any route changes by the airline.
Meanwhile, Atlanta's Hartsfield-Jackson International Airport is AirTran's main hub, so its credit would more likely benefit from the merger.
Some airports carry more risk factors for being affected by merger-related cost-cutting, such as those with "a significant presence" by both airlines or no dominating presence by either one, Moody's said. But Krummenacker added that the effects are likely to be spread evenly.
"We expect widespread capacity cuts across the system, but only to a small degree at each airport," he said.