Air New Zealand is withdrawing its full-year earnings guidance for 2020 “due to increased uncertainty surrounding the duration and scale of the Covid-19 outbreak.”
The carrier disclosed on 24 February target earnings before other significant items and taxation of NZ$300-350 million ($189-220 million) for financial year 2020, with an estimated NZ$35-75 million impact from the coronavirus outbreak.
This had been revised downwards from an earlier guidance, disclosed on 28 January, for NZ$350-450 million.
“However, the airline now believes that the financial impact is likely to be more significant than previously estimated and with the situation evolving at such a rapid pace, the airline is not in a position to provide an earnings outlook to the market at this time,” Air NZ says.
“An update on earnings expectations will be provided when appropriate.”
At the corporate level, the company is deferring any non-critical business activity as well as expenditure of non-urgent capital.
Chief executive Greg Foran has volunteered to reduce his base pay of NZ$1.65 million by NZ$250,000, or approximately 15%, while Air NZ’s executive team will extend a salary freeze that has been in place since May 2019.
There is also a hiring freeze on all non-critical roles while operational staff are offered the option to take unpaid leave in addition to managing annual leave balances.
Foran says it is increasingly clear that Covid-19 has created an unprecedented situation and it is difficult to predict future demand patterns.
“We have been continuously monitoring bookings and in recent days have seen a further decline which coincides with media coverage of the spread of Covid-19 to most countries on our network as well as here in New Zealand.”
The airline has seen a decline in bookings across its network over the past week and plans to cut capacity further. This includes suspending Shanghai services through the end of April and further consolidating its network across the Tasman, Pacific Islands and domestic network in March and April.
“The further spread of Covid-19 to countries outside of China, including New Zealand, has driven a downward shift in demand,” it says.
This will affect 3,220 flights from February to June, equivalent to a 10% capacity reduction across Air NZ’s network. Capacity on domestic routes will decline by 4%, and international routes will see an 11% and 7% reduction in long-haul and short-haul routes, respectively.
Over the same period, the carrier’s Asian network will see a 26% reduction.
Air NZ has also redeployed its fuel-efficient 787 Dreamliner fleet to drive operational efficiencies and used tactical pricing to stimulate demand on impacted sectors, while Foran says the carrier has braced itself for more.
“While we have already made swift adjustments to our operations, we are prepared to take further actions to address the ongoing demand impact of Covid-19.”