Air New Zealand’s update on its current estimate of the impact of coronavirus on FY 2020’s earnings is expected to show the airline has been adversely impacted as a result of softer demand for travel to and from Asian destinations. Weaker forward bookings for travel on the Tasman and domestic networks have also emerged as a result.
Immediate steps have been taken to mitigate the impact of lower demand, including adjustments to capacity across the Asia, Tasman and domestic networks. The airline is also increasing market development investment to drive additional demand, specifically across its domestic and Tasman markets. 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.
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 NZ$35 million to $75 million as a result of coronavirus.
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.
Chief executive officer Greg Foran acknowledges the challenging environment but says that he is confident Air New Zealand is well positioned to deliver the best result under these conditions.
“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,” says Foran
The airline will continue to assess the appropriate level of capacity and other potential actions to reflect the changing demand environment. Current network actions the airline has taken include: Previously announced capacity reductions across Asia routes, predominantly related to Shanghai and Hong Kong services; the airline announces today that services to Seoul will be temporarily suspended from 7 March through the end of June; Total Asia capacity will thereby reduce by 17% for the months of February through June; Tasman capacity reductions of 3% from March through May;, and reductions in Domestic capacity of 2% across March and April, focused on Christchurch and Queenstown services to/from Auckland.