Leaner Air New Zealand cuts capacity and staff

Air New Zealand will emerge from the COVID-19 pandemic 30 per cent smaller.

Air New Zealand chief executive Greg Foran. Picture: Getty Images

Air New Zealand will emerge from the COVID-19 pandemic 30 per cent smaller after shedding 4000 staff and grounding 15 Boeing 777s.

In a liquidity and earnings update to the NZX and ASX, the Kiwi carrier flagged an underlying loss for the 2020 financial year as a ­result of the health crisis.

To date, the carrier has not needed to draw on a $NZ900m ($839m) government loan facility, with $NZ640m in cash reserves remaining.

The 30 per cent reduction in workforce would drive a further $NZ350m- $NZ400m in savings a year, helping to reduce monthly cash burn by as much as $NZ60m.

Chief executive Greg Foran said the company was doing everything in its power to ensure Air New Zealand emerged “strongly” from the COVID crisis.

“This is without a doubt the most significant challenge our airline and indeed the entire aviation industry has ever faced,” Mr Foran said.

“The implementation of domestic travel restrictions and border closures have been incredibly ­effective at slowing the spread of COVID-19 in a number of countries including here in New Zealand, but they have also had a profound impact on demand for air travel.”

No specific earnings guidance was provided for the 2020 financial year other than the expectation of an underlying loss.

Chief financial officer Jeff McDowall said in the short to ­medium term, Air New Zealand was facing an environment where revenues would be “a small fraction of what we’re accustomed to”.

“Over the course of the last few months we have acted at pace to implement both short-term and structural cost saving measures to adapt to this new environment and we will continue to seek out further opportunities to consolidate facilities, reduce capital spend, review fleet composition, supply chain costs and adjust our labour base further,” Mr McDow­all said. “We know that demand for air travel will eventually rebound, so we are cognisant of striking the right balance between removing cost from the business and ensuring the airline is in a strong position to ramp up as demand recovers.”

In addition to plunging revenues, the airline had recorded losses of $NZ85m-$NZ100m on hedges due to reduced fuel consumption, and was expecting to pay as much as $NZ160m in ­redundancies.

The grounding of the 15 Boeing 777s until the end of the year would result in a non-cash impairment charge of between $NZ350m and $NZ450m.

Air New Zealand’s announcement resulted in its share price lifting on the ASX to close at $1.24, up 2 per cent for the day. Qantas shares also had their best day in months, closing at $4.07, the highest level since March 9.

International airline data for March released by the Bureau of Infrastructure, Transport and Regional Economics showed some carriers flew into Australia with a mere handful of passengers that month.

China Eastern Airlines undertook 49 flights into the country, with an average seat utilisation of 8.6 per cent. In contrast, 85.3 per cent of seats were used on services back to China.

The figures were even worse for Xiamen Airlines with only 8.4 per cent of seats filled on 16 inbound flights, and 74.3 per cent in use on outbound services.

Qantas’s average inbound load factor for March was 67.1 per cent over 1170 flights, while outbound was 59.9 per cent.

Virgin Australia reported 66.5 per cent seat utilisation on 551 inbound flights from overseas and 56.8 per cent heading out of the country.