Air NZ diagnoses $72m profit hit from virus

Air New Zealand expect lower demand caused by the coronavirus outbreak to knock up to $NZ75m off the airline’s profit in 2020.

Shares Air New Zealand, which delivers half-year results on Thursday, fell 5.3 per cent on Monday

Air New Zealand is expecting the plunge in travel demand caused by the coronavirus outbreak to knock up to $NZ75m ($71.8m) off the airline’s profit in 2020.

An updated outlook issued by the carrier on Monday outlined further cuts to capacity on Asian, trans-Tasman and domestic routes in response to the health crisis.

Although cheaper jet fuel would go some way to mitigating the impact of the cutbacks and lost passenger revenue, overall earnings were expected to be down between $NZ35m and $NZ75m.

Based on a midpoint cost of $NZ55m, the airline was targeting full-year earnings in the range of $NZ300m and $NZ350m, up from last year’s annual profit of $NZ270m.

New chief executive Greg Foran, who only started in the role this month, acknowledged the “challenging environment” for the airline but said it was well placed to deliver the best result in the conditions.

“Air New Zealand is a resilient business and we have demonstrated the ability time and again to respond quickly to changing conditions,” said Mr Foran, the former CEO of US retailer Walmart.

“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.”

In addition to previously announced capacity cuts on Shanghai and Hong Kong routes, Air New Zealand will temporarily suspend its Seoul services from March 7 to the end of June.

Total Asia capacity would reduce by 17 per cent for the next four months, and trans-Tasman flights would decrease by 3 per cent from March through May.

The cuts are similar to those announced by Qantas and Jetstar last week, alongside an expected reduction in earnings of between $100m and $150m.

Most of the major airlines in the region have now made significant changes to flight schedules, as travel restrictions imposed by governments to try to contain coronavirus take their toll.

An upgraded warning from the Australian government to “exercise a high degree of caution” when visiting Japan and South Korea could lead to further reductions.

Only China Southern and China Eastern are continuing to operate services to Australia after Air China pulled its flights between Sydney, Melbourne and Beijing last week.

The move was viewed by some in the travel industry as politically motivated, following Australia’s extension of a travel ban on Chinese nationals.

China strategy consultant and former Tourism Australia country manager Andy Jiang said he “could not think of a major country in the world that had no direct aviation access to Beijing, even during the coronavirus (outbreak)”.

Shares Air New Zealand, which delivers half-year results on Thursday, fell 5.3 per cent.