S&P downgrades Southwest Airlines to 'BBB+'

The rating, down from "A-," is still considered investment-grade, while ratings of most other U.S. carriers are in speculative-grade or junk territory.

Southwest spokesman Chris Mainz said that with the downgrade, "our cost of borrowing could increase very slightly, but not materially."

Southwest had been on S&P's watch list, so the downgrade was not a total surprise. On Thursday, the ratings agency removed Southwest from that list and gave it a "stable" outlook.

"The downgrade reflects a weakening in the company's financial profile because of high and volatile (albeit recently somewhat reduced) fuel prices, pressure on revenues due to lower demand in a weaker economy, and a more negative assessment of the long-term fundamentals of the U.S. airline industry," wrote S&P analyst Betsy R. Snyder.

Last week, Southwest Chief Executive Gary Kelly said he believes economic weakness and higher fares were probably cutting into travel demand. He predicted that Southwest planes would be slightly less full this fall than a year ago.

Southwest had about $5.8 billion in cash and short-term investments on June 30, and airline officials said they do not believe the turmoil in the financial markets will directly affect the Dallas-based company.

Shares of Southwest rose 16 cents, or 1.4 percent, to $11.75 on Thursday.

Spot prices for jet fuel have already fallen nearly 40 percent since early July. Still, this week's price is triple the cost of five years ago.

Even lower oil prices have a downside for airlines. The reason behind oil's swoon--fear of recession--scares carriers, who worry that fewer people will fly.