Air New Zealand flags $NZ75m coronavirus hit on earnings

Air New Zealand is expecting the coronavirus outbreak to deliver a $NZ75m blow to annual earnings.

Air New Zealand has become the latest carrier to reveal the impact of the coronavirus to earnings, at the same time as making a range of capacity cutbacks. Picture: Dean Purcell-Pool/Getty Images

Air New Zealand has become the latest carrier to announce wide-ranging capacity cutbacks as it prepares for an expected slug to earnings of up to $NZ75m.

The airline has updated its 2020 outlook just days before the release of half-year results, warning revenue for the rest of the year is expected to be adversely affected by softer demand to and from Asian destinations.

Weaker forward bookings for travel on trans-Tasman and domestic networks have also emerged, resulting in adjustments to capacity in those markets.

Among the adjustments made by Air New Zealand are capacity reductions across Asia routes, predominantly Shanghai and Hong Kong services, and the suspension of flights to Seoul from March 7 to the end of June.

Total Asia capacity would be reduced by 17 per cent, and trans-Tasman flights cut back by 3 per cent from March through May.

Domestic capacity would be pared back by 2 per cent across March and April, focused on Christchurch and Queenstown services to and from Auckland.

Although cheaper jet fuel would partially mitigate the impact of lower demand, Air New Zealand was expecting overall earnings to be down between $NZ35m and $NS75m as a result of the coronavirus.

Based on that assumption, overall earnings were forecast to be in the range of $NZ300m and $NZ350m for the 2020 financial year.

Chief executive officer Greg Foran said it was a challenging environment but the airline was in good shape.

“Air New Zealand is a resilient business and we have demonstrated the ability time and again to respond quickly to changing market conditions,” said Mr Foran who only began in the role of CEO at the start of the month.

“We have a highly capable and experienced senior leadership team who have dealt with challenges such as this before and I am confident that we will effectively navigate our way through this.”

Qantas also announced wide-ranging cuts to capacity on its Asia, trans-Tasman and domestic routes last week, with the expectation the coronavirus outbreak would wipe up to $150m from annual profits.

Virgin Australia will deliver its half-year results on Wednesday and is expected to provide an update on the impact of the coronavirus epidemic at that time.

Other airlines operating in the region have also made dramatic capacity adjustments, including Singapore Airlines, Cathay Pacific and Chinese carriers.

The latest cutbacks by Air China have seen all direct services between Australia and Beijing disappear.

China Southern and China Eastern are continuing to operate limited services between Sydney and Melbourne, and Guangzhou or Shanghai.