We can survive storm, Virgin Australia tells investors
Virgin Australia has moved to reassure investors it is in a position to survive the financial firestorm of the coronavirus.
Virgin Australia has moved to reassure investors it is in a position to survive the financial firestorm of the coronavirus, after a week that saw its earnings outlook downgraded to negative and its share price hit a low of just 8.7c.
Chief financial officer Keith Neate spent Friday meeting with investors, as speculation about the carrier’s future intensified.
Despite having limited exposure to Asian markets following the axing of its Hong Kong route, Virgin Australia is widely considered to be vulnerable to a slowdown in travel due to the coronavirus.
In its earnings outlook downgrade for the airline, credit ratings agency S&P Global said Virgin Australia faced the risk of increasing its debt relative to earnings “despite efforts to reduce capacity, exit loss-making routes and accelerate cost reduction”.
“The negative outlook reflects our view that challenging industry conditions over the next six months are likely to pressure Virgin Australia’s earnings profile,” analyst Joel Yap said.
“The outlook also reflects our view that there is a degree of uncertainty regarding Virgin Australia’s ownership structure and the willingness of its owners to provide timely and co-ordinated funding support in the event of severe financial stress.”
Shareholders including HNA and Etihad have their own worries, with HNA facing liquidation and the UAE’s national carrier posting a $1.2bn loss for 2019.
A Virgin Australia spokesman moved to allay concerns, describing Friday’s round of meetings on as “a routine part of the company’s investor relations program”.
“The group retains significant financial flexibility, maintaining a cash position in excess of $1bn and has announced a number of immediate measures including fleet and capacity changes to mitigate the financial impact of the coronavirus,” he said.
The Australian Federation of Air Pilots confirmed all of Virgin Australia’s A330 pilots had been stood down for two days a month without pay, following the axing of Hong Kong routes.
A spokeswoman said they understood the measures were temporary, and were designed to manage the situation arising from the coronavirus outbreak.
“The AFAP is directly involved in discussions with Virgin management and negotiating to minimise the resulting implications for our pilot members,” she said.
New flights to Tokyo are due to start at the end of the month and, as of Friday, Virgin Australia remained committed to the service.
But in another worrying sign for Virgin, Qantas on Friday announced capacity reductions on four routes to Japan, including Sydney-Sapporo; Brisbane-Tokyo; Melbourne-Tokyo and Sydney-Osaka. Qantas cited “continued weaker demand following an escalation of the coronavirus outbreak” and also cancelled several flights to Hong Kong and Auckland until the end of March.
“The coronavirus situation and its impact on international travel demand is evolving and we’re monitoring closely,” a Qantas spokesman said. “Further changes are expected.”
The International Air Transport Association likened the impact of the coronavirus on airlines as “on par with the global financial crisis”, with a predicted blow to revenue of $75bn in the Asia-Pacific alone.
Board of Airline Representatives Australia director Barry Abrams said the IATA outlook highlighted why suppliers, such as airports, needed to review costs imposed on carriers.
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