Coronavirus prompts Air New Zealand to can earnings guidance, slash capacity

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March 09, 2020
Air New Zealand coronavirus capacity
Empty seats are prompting Air NZ to axe its earnings guidance and slash capacity

Air New Zealand has withdrawn its full-year earnings guidance and is further slashing capacity due to a sharp slump in demand and increased uncertainty about the duration and scale of the coronavirus outbreak.

Despite attempts to mitigate the reduced demand by redeploying fuel-efficient Boeing 787s and tactical pricing, the airline is now reducing capacity by about 10 percent across its network as it further consolidates flights.

This includes capacity cuts into Asia of 26 percent through to June and extending the suspension of its Shanghai service through to the end of April.

READ: Emirates introduces increased disinfection on all cabins

Tasman capacity is being reduced 7 percent through June, while capacity to the Pacific Islands is being cut by 6 percent.

Domestic capacity is being cut 4 percent with a 10-15 percent reduction in March and April.

The further cuts mean AirNZ will reduce long-haul international capacity by an overall 11 percent.

The airline as recently as February 27 estimated the impact of the coronavirus at between $NZ35m to $NZ75m with forecast full-year earnings of $NZ300m to $NZ350m.

It withdrew this in response to an additional softening of demand over the past week and a decline in bookings across its network driven by the further spread of the coronavirus.

Air New Zealand chief executive Greg Foran said it was increasingly clear that COVID-19 had created an unprecedented situation that made it 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,”  he said.

Other actions in response to the swift decline in demand include the deferral of non-urgent capital spend and non-critical business activity across operational and corporate functions.

Chief Executive Officer Greg Foran has voluntarily offered to reduce his base pay of $NZ1.65 million by approximately 15 percent, or $NZ250,000, and Air New Zealand’s executive team will extend a salary freeze that has been in place since May 2019.

The airline has also implemented a hiring freeze for all roles that are non-critical and will offer operational staff the option to take unpaid leave in addition to managing annual leave balances.

“Air New Zealand is a strong and resilient business operated by a world-class team with deep experience having navigated prior shocks to our business and industry,’’ Foran said.

“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.”

Qantas has also signaled it expects further capacity cuts after announcing a series of route changes on Friday. There is speculation this may include grounding up to half of its Airbus A380 superjumbos.