Air New Zealand is expecting a NZ$35-75 million ($22-47 million) hit to financial year 2020 earnings, as it weighs up the impact of the coronavirus outbreak against cheaper jet fuel.
“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,” it says.
The carrier has increased market development investment to drive additional demand, which alongside lower jet fuel prices will partially mitigate the impact of lower demand, but overall earnings for the 2020 financial year will be adversely impacted, it says.
Given a NZ$55 million impact, the midpoint of Air NZ’s estimates, it targets earnings before other significant items and taxation of NZ$300-350 million. This has been revised downwards from an earlier guidance, disclosed on 28 January, for NZ$350-450 million.
This target is also based on “current assumptions of lower demand” and announced capacity reductions, as well as jet fuel prices remaining at $65 per barrel.
Air NZ will release its 2020 interim results later this week.
Going from January to February, Cirium schedules data shows that the carrier suspended all flights to Hong Kong and about two-thirds of services to Shanghai. This week, it announced a temporary suspension of Seoul operations from 7 March through the end of June.
In light of this, Air NZ anticipates a 17% decline in total Asia capacity from February through June.
“The airline will continue to assess the appropriate level of capacity and other potential actions to reflect the changing demand environment,” it says.
“Air New Zealand is a resilient business and we have demonstrated the ability time and again to respond quickly to changing market conditions,” says chief executive Greg Foran.
“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.”
