Coronavirus concern smashes Qantas shares as UBS sends earnings warning

Traffic declines just half the rate of the SARS pandemic could hit Qantas profit before tax by as much as $200m, says UBS.

Airlines and airports face financial pain if the coronavirus outbreak spreads, analysts warn.

Mounting concern over the coronavirus outbreak has rattled the Qantas share price as a new analyst’s note predicts the health crisis could deliver a $500m hit to the airline’s bottom line.

On Tuesday in trading on the Australian Securities Exchange, Qantas shares fell more than 5 per cent to $6.36, which was down almost 10 per cent on a week ago when the company was trading at $7.05 a share.

The battering came as UBS reduced its earnings per share estimate for Qantas by 4 to 5 per cent, and forecast a 3 per cent decline in international traffic.

However, the note warned that could blow out much further if the coronavirus spread significantly or media reports of a 10 to 20 per cent decline in tourism due to bushfires were accurate.

Analyst Matt Ryan made the observation that if international traffic declined at half the rate it did during the SARS pandemic, Qantas would be looking at a $200m slug to profit before tax.

“If we assume the same impact as SARS on our traffic forecasts, we see a larger impact at around $500m,” Mr Ryan noted.

He said potential “offsetting actions” available to Qantas included reducing capacity, incentivising staff to take accumulated leave, restructuring or freezing discretionary expenditure and reducing capex.

After the SARS outbreak in 2002-03, Qantas undertook a major restructuring process that saw 2500 full-time jobs go.

The airline is yet to make any schedule changes to its flights to China in response to the coronavirus outbreak and a spokesman said they were monitoring the situation closely.

Qantas operates services to Shanghai and Beijing but not to Wuhan, where the majority of the coronavirus cases have occurred.

Beijing-Sydney flights will cease to operate in March, due to poor patronage in the premium cabins.

More broadly Australia’s airline industry recorded its worst on time performance result on record in December, with more than a quarter of arrivals and departures delayed.

The Bureau of Infrastructure, Transport and Regional Economics that compiled the data suggested the results were “probably impacted by smoke haze from bushfires”.

Virgin Australia and Qantas both agreed that was the case, while Qantas had the additional challenge of “unscheduled maintenance” on three of its Boeing 737s, identified as having hairline cracks in the pickle forks, that help attach the wings to the fuselage.

Jetstar recorded the highest percentage of cancelled flights, with 7.1 per cent of services axed due to industrial action by pilots in the first week of school holidays.

The low fares carrier is holding talks with the Australian Federation of Air Pilots on Tuesday and Wednesday, for the first time since November to try to resolve the dispute over a new enterprise agreement.

Just more than 60 per cent of Qantas’ short-haul pilots have voted in favour of their new EBA, which includes a 3 per cent pay rise a year.