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Air New Zealand to cut more flights as coronavirus dents demand
Jamie Smyth reports from Sydney
Flight Centre Ltd and Air New Zealand introduced a new round of cost cuts and capacity reductions on Monday in response to a collapse in bookings linked to the coronavirus outbreak.
The move comes amid growing investor concerns about companies with high debt levels in the travel and tourism sectors.
New Zealand’s biggest airline said on Monday the financial impact of the virus would be more than it guided just two weeks ago at its interim results. The airline said it was not in a position to give a new earnings outlook.
“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,” said Greg Foran, Air New Zealand chief executive.
In response, Mr Foran said the airline is implementing further capacity reductions, which would reduce total capacity to Asia by a quarter and domestic capacity by 10 per cent. He said the airline would defer non-urgent capital expenditure and non-critical business activity. Air New Zealand is implementing a hiring freeze, extending an executive salary freeze that has been in place since May 2019 and Mr Foran has voluntarily offered to reduce his base salary of NZ$1.65m by 15 per cent.
Flight Centre, a Brisbane-based company that is one of the world’s biggest travel agents, said on Monday it is asking employees to take unpaid leave or reduce their working hours to cut costs.
“While it’s quieter than normal, it makes sense to encourage people to take leave or to operate more flexibly,” said a Flight Centre spokesman.
“A shorter work week is one of the options that has been made available to our support and sales people over the next couple of months.”
The cost cutting in the travel industry comes as investors closely scrutinise the financial strength of airlines and related industries. Shares in Virgin Australia, Australia’s second biggest carrier, are trading at 10 year lows of just over A$0.08 following a decision by credit rating agency S&P to downgrade Virgin’s outlook to negative and warn its debt to earnings before interest, tax, depreciation and amortisation may exceed 6 times for the year ended June 30 2020.
Virgin, which held one-to-one meetings with investors on Friday, said the group retained significant financial flexibility and maintained a cash position in excess of A$1bn.