Air New Zealand slashes Asia capacity as COVID-19 cuts earnings

February 24, 2020
Air NZ
Photo: Airbus

The COVID-19 coronavirus has prompted Air New Zealand to reduce capacity into Asia by 17 percent from February to June as it braces for a $NZ35-75 million hit to its full-year earnings.

The Kiwi airline said it will also cut Tasman capacity by 3 percent from March through May and domestic capacity by 2 percent across March and April, focused on Auckland-Christchurch and Auckland-Queenstown services.

The cuts are similar to those announced last week by Australia’s Qantas at its interim earnings announcement and Chinese travelers are a significant component of inbound tourists for both countries.

READ: Boeing 777-X test program accelerates

However, both airlines are well-placed financially to weather the storm and the cuts are not as big as they are for carriers closer to the infection, such as Hong Kong’s Cathay Pacific.

Asia-Pacific airlines will be hardest hit by the coronavirus and the International Air transport Association has estimated passenger demand will be slashed by 9 percent compared to 2019 as the region’s carriers see revenue plummet by $US27.8 million in “a very tough year”.

READ: Asia-Pacific airlines face massive $US28 billion revenue loss from COVID-19

As of February 23, almost 78,000 people had been infected by the disease worldwide with more than 2360 deaths.

In addition to the immediate response to the softer demand, Air New Zealand is also increasing market development investment to drive additional demand, specifically across its domestic and Tasman markets.

“Air New Zealand is a resilient business and we have demonstrated the ability time and again to respond quickly to changing market conditions,” AirNZ chief executive Greg Foran said.

“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.”

Air NZ noted the situation remained uncertain but the net negative earnings impact of $NZ35m to $NZ75m was based on a current assumption of lower demand that would be mitigated by benefits from the capacity reductions and lower jet fuel prices.

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

“The airline will provide an update to this guidance should the current assumptions materially change.”

Air New Zealand will deliver its interim results on February 27.