How long will it be before Qantas and Virgin Australia follow the second round of cost cuts and capacity reductions revealed by Air New Zealand yesterday?
Air New Zealand also withdrew its full-year 2020 earnings outlook due to the increased uncertainty over the duration and scale of the coronavirus outbreak and newish CEO, Greg Foran will take a 15% cut in salary.
Late last month Air NZ in February said the COVID-19 hit to FY20 earnings would be in the range of $NZ35 million ($A34 million) to $NZ75 million ($A72 million) due to lower demand and capacity cuts.
The company on Monday said financial impact is now likely to be more significant than previously estimated. First-half profit fell by 33 percent to $NZ101 million last month.
In its February update, it said it targeting earnings before other significant items and taxation to be in a range of approximately $300 million to $350 million. That assumes jet fuel remains around $US65 a barrel. Clearly that won’t be the case if the current low level for crude around $US30 to $US35 a barrel continues for the next month or so.
But rather than the big sell-off, the shares dropped 5% to $1.89 as investors also realised that it (plus Qantas and rivals) would be major beneficiaries from the plunge in oil and fuel prices.
It cut back its total capacity on flights to Asia by 26 through to the end of June (and the financial year).
Overall network capacity has been cut by about 10% and capacity on flights to Australia by 7 percent.
The airline had already cut flights, including a 4% reduction in capacity to and from Australia and a 2% trim in domestic capacity through June.
“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 …,” it said in a statement to the ASX before trading started.
The carrier said there was a further decline in bookings over the last week, driven by the further spread of COVID-19 to countries outside of China, including New Zealand itself.
Besides the 15% cut in the CEO’s base pay the company’s executive team will extend a freeze on its salaries that has been in place since May 2019, the airline said.
There will also be a freeze on hiring for all non-critical roles, and an offer of voluntary unpaid leave for operational staff.
Air New Zealand’s 5% fall in its share price was the best yesterday in the listed sector – Qantas shares were down 7% to $4.33 and Virgin shares were down 9.1% to 7.9 cents.
