Moody's today upgraded several ratings for Portuguese airline TAP to positive, following an increase in profitability since the last review in April last year.

In a statement released today, quoted by Lusa, the financial rating agency announced that it had revised upwards TAP's corporate family ratings (CFR) to B2, from B3, and the probability of default rating to B2-PD, from B3-PD. Similarly, the rating of the company's 375 million euro bond issue was also raised from B3 to B2.

At the same time, the base credit rating improved from caa1 to b3.

This improvement reflects, according to the agency, "both the strong improvement in the company's operating profitability since the last improvement in April 2022 and the concomitant improvement in credit metrics."

TAP's strong performance in 2022 was pushed by its leisure customer base and its exposure to the North Atlantic and Brazil routes, "which were two routes that came 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 value.

Revenue per ASK was 21% higher than in 2019 and "cost control" was also praised by the rating agency, which noted that the cost per ASK fell by almost 2% compared to 2019 without the cost of fuel. The EBIT margin was 8.5%, "well above the 2.9% margin in 2019".

For this year, Moody's estimates that TAP "should continue to benefit from favorable market conditions in 2013".

"Despite inflationary environments and a weakening economy, the recovery in passenger traffic should continue. Booking trends remain positive in both volume and profitability," says the agency, noting that, "along with the rest of the industry, TAP continues to experience a robust pricing environment" which 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, competitive cost structures with other European airlines with lower staff costs and several exclusive routes between Europe and Brazil.

Among the reasons for constructing the rating, Moody's points to the small size of the fleet operated, the volatile and historically weak performance - even after the partial privatization in 2015 - or low pre-pandemic profitability.

TAP made a profit of 65.6 million euros in 2022, the company said in March, returning to positive results after losses of 1.6 billion in 2021 and ahead of schedule in the restructuring plan.