Air New Zealand forecasts $35m-$75m coronavirus profit hit

Monday, 24 February 2020

Reserve Bank governor Adrian Orr speaks to Christchurch businesspeople about handling the effects of the coronavirus.

Air New Zealand warned shareholders coronavirus would knock $35 million to $75m off its profit.

'The airline's revenue outlook for the remainder of the year is expected to be adversely impacted as a result of softer demand for travel to and from Asian destinations,' chief executive officer Greg Foran said.

'Weaker forward bookings for travel on the Tasman and Domestic networks have also emerged as a result.'

Coronavirus will deliver a $35 million to $75m hit to Air New Zealand's revenue.

But he said immediate steps had been taken to mitigate the impact of lower demand, including adjustments to capacity across the Asia, Tasman and Domestic networks.

* Auckland Airport called into meeting with transport minister**

The airline had also increased marketing spending in a bid to encourage New Zealanders to travel, both internally, as well as trying to boost trans-Tasman holiday-making.

'These actions, in addition to the reduced market price for jet fuel, will partially mitigate the impact of lower demand, however overall earnings for the 2020 financial year will be adversely impacted,' Foran said.

'While the situation is uncertain, based on current assumptions of lower demand as well as the benefit of the announced capacity reductions and lower jet fuel prices, the airline currently expects a net negative impact to earnings in the range of $35m to $75m as a result of coronavirus.

Foran outlined the steps the airline had taken to reduce the financial hit from disruption caused by coronavirus.

These included reducing capacity on routes to Asia, predominantly related to Shanghai and Hong Kong services.

It had now also temporarily suspended flights to Seoul in South Korea until the end of June.

It's total flight capacity to Asia would reduce by 17 per cent during the period from February to the end of June.

The airline had also cut it flight capacity to and from Australia by 3 per cent from March through May.

Domestically, the airline had cut capacity by 2 per cent between March and April, with the cuts focused on Christchurch and Queenstown services to and from Auckland.

Greg Foran is stepping into the Air New Zealand chief executive role in February.

'At the midpoint of the estimated range above, which is approximately $55m, the airline is targeting earnings before other significant items and taxation to be in a range of approximately $300m to $350m.'

'While the situation is uncertain, based on current assumptions of lower demand as well as the benefit of the announced capacity reductions and lower jet fuel prices, the airline currently expects a net negative impact to earnings in the range of $35m to $75m as a result of coronavirus,' said Air New Zealand chief executive Greg Foran.

The airline would provide updates to this guidance should circumstances change.

'Air New Zealand is a resilient business and we have demonstrated the ability time and again to respond quickly to changing market conditions. 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,' said Foran.

The airline would release its 2020 Interim Results to the market on February 27.